How to Fix Democracy Robin Hanson Dept. of Economics George Mason University

How to Fix Democracy
Robin Hanson
Dept. of Economics
George Mason University
Outline
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Science vs. engineering of government
Big democratic failure: not aggregate info
But speculative markets do this well
They can estimate policy consequences
Futarchy: vote on values, but bet on facts
Discuss rationale and objections
Science vs. Design/Engineering
• E.g., astronomy
• Learn what is
• Path: puzzle, theory,
implications, data test,
inference, cite, in texts
• Focus on few high
probability theories
• E.g., rocketry
• Create what can be
• Path: problem, idea,
prototype, lab test,
field test, common use
• Try out many low
probability ideas
Can know what works, without know why it works.
Can know why things go wrong, yet be unable to fix.
Observed Forms of Government
• Dictator – roving? inherited?
– Limits: constitution, regional exit, emigration
• Democracy
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Franchise: all, land, money, inherited, guns
Representation: direct, random, elected
Power: united, divided, legislature, federalism
Voting Rule: first past post, proportional rule
• Many alternatives studied, e.g., approval voting
Win/Win vs. Doing Battle
What
You
Want
Win/Win
Doing Battle
What I want
Issues In Designing Government
“Do battle, Find win/win deals.”
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Promote invest, limit rent-seek (time-consistent)
Stable against revolution, policy cycles
Allow frequent, timely coordination
Feel belong, represented, listened to
Induce citizens to reveal preferences
Induce reveal info on policy consequences
Big peaceful changes must not be ideological
Public Goods Mechanisms
• Each says value of each choice, pick choice & tax
– Ignore agenda setting, incentives to learn, secrets
• Clarke Tax [71, Groves73, Tideman/Tullock76]
– Fails in lab experiments, coalitions can beat
• Walker [81] - fails in lab experiments.
• Groves/Ledyard Mechanism [77, Chen/Tang98]
– Has worked in lab, but not win/win for all w.r.t. no p.g.
• Lots theory on complex mechanisms for secrets
– Says can do great if signals correlated or acts repeated
– But no experiments!
Project Approval Example
Number of
People
10
10
14 or 16
6 or 4
Payoff if Project Payoff if Project
Succeeds
Fails
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1
-1
-1
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-1
-1
1
If project will succeed, 4 people get + clues and 2 get – clues.
If project will fail,
4 people get – clues and 2 get + clues.
Probability of project success = 1/3.
Massive Info Aggregate Failure!
Evidence
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Agreeing to disagree on facts is irrational
Opinion polls are not random walks
Many stupid public opinions
Huge variation in national growth rates
Theory
• Small outcome push for informed voters
• Bigger other pushes: beliefs are like clothes
Stupid Public Opinions
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85% “Jesus was born of a virgin” (’94 Barna)
80% “U.S. Govt. is hiding the fact that it knows of
the existence of aliens” (’97 CNN/Time)
72% believe in angels (’96 Gallup)
52% “astrology has some scientific truth”, “theory
of evolution probably not true” (’96 GSS)
66% “foreign aid spending is too high is major
reason economy is not doing better” (’96 SAEE)
74% “was an official cover-up …[of] the truth
about the Kennedy assassination?” (’98 CBS)
4.4
4.2
Log GDP Per Capita vs. Year
4
Japan, Argentina, Venezuela highlighted
Source: Maddison 1995
3.8
3.6
3.4
3.2
3
2.8
2.6
1820
1840
1860
1880
1900
1920
1940
1960
1980
2000
An Old Idea
1651 British chemical docs dare schools:
Oh ye Schooles. ... Let us take out of the hospitals,
out of the Camps, or from elsewhere, 200, or 500
poor People, that have Fevers, Pleurisies, etc. Let
us divide them into halfes, let us cast lots, that one
halfe of them may fall to my share, and the other to
yours; ... we shall see how many Funerals both of
us shall have: But let the reward of the contention
or wager, be 300 Florens, deposited on both sides:
Here your business is decided.
Continental Drift Scenario
• 1912, Alfred Wegener proposed
• Was: experts said nuts, believed in 1960s
• Alternative:
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Create claim that experts will agree in 2012
Offer to bet at high odds
Experts put up or shut up; can’t laugh it off.
If they keep odds down, his grandkids make $.
Speculators tempted to check on experts
Eventually experts agree, bettors paid off
Speculative Markets
Work Info Aggregate Wonders
• It’s hard to find info not reflected in prices
• O.J. futures beat govt. forecasts [R. Roll AER ‘84]
• Election markets beat polls [Foresythe et.al. AER ‘92]
– most traders biased, but not active traders
• Markets at horse races tap non-IQ smarts
[Ceci & Liker, J. Exper. Psy. ‘86]
• In lab, reveal info if traders experienced &
know net payoffs [Forsythe & Lundholm, Econometrica ‘90]
Recent Market Prototypes
• Iowa Electronic Markets - on elections
• Play-$ web games show small markets work
– FX: 2K players, 200+ claims, 80+ sci/tech
– HSX: 100K players, ~500 movies, stars
– More .coms: newsbet, myhand, funbets, …
• Internal company markets on sales, delivery
– at HP, Siemens, Xanadu
– Limit participation & stakes
Why Speculative Markets Work
• Instead of the rest of us deciding who the
experts are, people self-select as experts.
• People have incentive to be honest with
themselves, and to stay out if don’t know.
• Those who aren’t honest with themselves
eventually lose money, and so influence.
• Can specialize in correcting any bias see.
“Put
Where
Is” Vision
• Markets on most topics of debate
– Can ask any question we may eventually agree on
• Interpret betting odds as answer estimate
– Can subsidize a market to get better estimate
• Public, media defer to market estimates
– To influence world, experts convince speculators
– Likely: labs bet on advice from hired experts
• Ignorant stay out – are self-aware or go broke
– Yet non-credentialed masses have voice
• Arbitrageurs kill biases, inconsistencies
Decision Markets Give E(O|C)
Choices
Outcomes
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FED money policy
Who elected president
Health care regulation
School vouchers
• Who is CEO
• Which ad agency
GDP per capita
War deaths
Lifespan
School test scores
• Stock price
• Product sales
Predicting Gun Control
P(G)
$1
P(not G)
$1 if
Gun Control
1
$1 if No
Gun Control
Predicting Gun Control Outcomes
$1 if Gun Control
& Less Crime
$1 if
Gun Control
$1 if Gun Control
& More Crime
$1
$1 if No
Gun Control
$1 if No Gun Control
& Less Crime
$1 if No Gun Control
& More Crime
Gun Control Decision Markets
P(G)
$1 if Gun
Control & Less
Crime
$1 if
Gun Control
P(L | G)
$1
Compare!
P(L | not G)
P(not G)
$1 if No
Gun Control
$1 if No Gun
Control &
Less Crime
Regulation of Speculation
Racetrack
Casino
Capitalize
Firms
“Entertain”
Lottery
Sweepstake
Sports Bet
Gamble
Aggregate
Information
Hedge
Individual
Risk
Hedge
Common
Risk
Does Ignorance Stabilize Politics?
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Of role – like behind Rawls’ “veil”
Of candidate positions – mix -> pure str.
Of project success – see voting example
Expressive voting seems more altruistic
Rationale for “Futarchy”
• The main reason why nations are richer,
happier is that they follow better policies.
• Betting markets are the best institution we
know of to aggregate information on
specific later-verifiable topics.
• It’s not that hard to tell the rich, happy
nations from the poor, miserable ones.
– Personal hidden info not that big a deal
– Measurable aggregates get close enough
Vote On Values
But
Bet On Beliefs
E[GDP+|Alt.] >?
E[GDP+|S.Q.]
Futarchy’s One Rule
When a market estimates currently-defined
GDP+ to be higher given some proposed
alternative policy, that policy becomes law.
• Like contract, proposal says how handle conflicts.
• Refine GDP+ to fix unintended policies.
• Recurse to settle details to clarify this rule, and to
pick local proxy outcomes for smaller decisions.
• Treaties via include other nation’s GDP+ in own.
Issues In Defining GDP+
Claim: Plain GDP futarchy beats our democracy.
(Few-% time-discounted average of future log)
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Risk aversion, time discounting
Leisure, environment, art, lifespan
Inequality, population, foreigners
Counting moral outrages
Issues In Defining Official Prices
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Valid “banks” issue contingent assets
Valid “cash” contingent assets pay off in
Valid “marketplace” guarantees offer
“Enough” difference: size, duration, breadth
Valid judges of whether alternative tried
Ideological Neutrality
• If speculators think minarchy best gets
citizens what they say they want, futarchy
should deliver minarchy.
• But leftists have also endorsed, thinking
speculators will agree with them about the
value of regulation, social insurance, etc.
– Expect savvy selfish capitalists to bet beliefs
Objections to Futarchy
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Is election where rich get more votes
Markets bubbles, markets too thin
Interested parties buy policies via market
Insiders get policies want by redefine GDP+
GDP+ measurements will be corrupted
GDP+ only measurable now when not matter
Max GDP+ will max plus errors in measure