1. Thank you for the detailed reply. It was very helpful!
2. The more I study futarchy, the more I realize I was NOT a finance
major back in college. By coincidence I am doing research, for the
first time, in commodities futures - so the same terms are appearing
in two places in my life of late :). But either way, it takes some
work to understand.
3. Your explanations make it appear much safer to use futarchy - thank
you.

And on to my next question...

All this theoretical discussion is fun, but how can we start testing
these ideas? Robin clearly showed how we need not convince government
to try futarchy as a first step - we can try it in corporations.

In a past life I was the lead game designer at a little online game
company. It was my exposure to the online game world that revealed to
me the potential to use games as experimental platforms for all manner
of interesting things - and places where you can work without worry of
anti-gambling legislation (so long as the currency being bet is in-
game currency vs real world money).

My little company is still alive and kicking, and if we had some
resources to burn (I look forward to that day :)), I'd LOVE to run
futarchy experiments in it. One could imagine futarchy as a powerful
means to determine which new features/changes should be made to an
online game by letting the players bet in-game currency on various
proposals.

Are there other places people see as ripe for cheap experimentation?
What do people think of using online games as a testing platform?




--- In futarchy_discuss@yahoogroups.com, "Tom Breton (Tehom)"
<tehom@...> wrote:
>
> "Paul G. Silva" <paulgsilva@...> writes:
>
> > The above brain dump makes me wonder if prediction markets are
well
> > suited to answering "big" questions. After all, isn't it so much
> > harder to disentangle cause and effect with big problems?
> >
> > If someone were 2 years ago were to propose "This infrastructure
> > project will increase GDP by 10% in five years"... and then this
> > current economic crisis hits us. Maybe the GDP did increase
BECAUSE OF THE
> > INFRASTRUCTURE by 10%, but the economy as a whole ends up
> > shrinking by 5% so... the project WORKED but GDP (or GDP+) is a
> > measure too prone to other factors for us to be able to use it for
any
> > but LARGE IMPACT items.
> >
> > Thoughts?
>
> You ask good questions.
>
> Some approaches:
>
> * The "side-bets" approach. In this approach, investors are
expected
> to arrange their portfolios to control what risks they are
exposed
> to.
>
> For instance, suppose that Proposal X is a proposal in a futarchy
> and that I as an investor believe the following:
>
> * I believe Proposal X will increase average health in 10 years;
> other people disagree.
>
> * I assume as conventional wisdom that an increase in average
> health 10 years from now will increase GDP+ in 20 years. I
know
> no more about this than everyone else.
>
> * I don't know much about other factors affecting GDP+
>
> * And for the sake of simple exposition, let's say that a low
> mortality rate (say, below a threshhold of 1% per year in a
> certain population) is the sole measure of health.
>
> How can I bet on X but I avoid getting whomped when, even if I'm
> right, something else lowers GDP+ (say, the banking crisis)? I
> could invest as follows:
>
> * Long on proposal X
>
> * Long on a futures issue that, contingent on the mortality
rate
> 10 years from now being low, pays off OPPOSITE to GDP+ 20
years
> from now.
>
> Note that I'm just neutralizing an implied short position in
> it. So if measure X is enacted and it lowers mortality as I
> believe, I become indifferent to GDP+. Since other investors
> don't believe X will lower mortality, presumably I can buy
this
> issue plus an issue of X for less than the pair of them is
> worth if I'm right.
>
> * Long on a futures issue that, contingent on the mortality
rate
> 10 years from now NOT being low, pays off according to GDP+
20
> years from now. Similar reasoning to the above, for the case
> when X is not enacted.
>
> I'm sure the logic is familiar to everyone here: Any losses I
take
> on one are offset by gains in the other, except for my intended
> exposure. I gain or lose only according to the effect of
proposal
> X on mortality.
>
>
> * The "layers upon layers" approach. In this approach, proposals
> often propose to create other markets. For clarity, I'll call
them
> sub-markets and the first one the "main" market.
>
> A sub-market, if created, has its own utility function and
commands
> certain specified resources. Let's make that a bit clearer: In
the
> situation I'm talking about, there's a proposal X to create a
> decision sub-market S. The proposal X specifies:
>
> * what resources S is to be able to disburse. For instance, $10
> million over its lifetime. (Assume that the main market
> disburses resources of at least that amount.)
>
> * what S's utility function is to be. For instance, it might be
> the lowering of the mortality rate 10 years from now.
>
> So X is in effect a proposal to spend $10 million according to
the
> decisions of sub-market S. If X is not enacted, nothing special
> happens and S doesn't come into being.
>
> The expectation is that X will be enacted if both:
>
> 1. Whatever it measures tends to cause higher GDP+
>
> * Of course it will never correlate as well as GDP+ itself,
so
> the next item is crucial.
>
> 2. Its payoff function contributes more by increasing the
quality
> of the decisions in S than it detracts by being a proxy for
> GDP+. That is, because it measures a smaller, simpler
> situation, S is easier for investors to predict than the main
> market.
>
>
> What's neat is that neither approach has to be written into the
> futarchy rules. An enterprising individual could just do either.
>
> Tom Breton (Tehom)
>