Decision markets that give the consequences of something

Chris F. Masse August 14th, 2007

Here’s what Robin Hanson meant… when he wrote:

[...] markets that give the consequences of electing any particular candidate.

Let U = the unemployment rate, D = Democrats win, and R = Republicans win. An exchange rate between “Pays $U if D” and “Pays $1 if D” gives an estimate of E[U|D]. Similarly, an exchange rate between “Pays $U if R” and “Pays $1 if R” gives an estimate of E[U|R]. We can compare E[U|D] and E[U|R] to see which candidate is expected to have a lower unemployment rate. And we know how to pay off all of these assets, no matter what happens.

Since we can pay off all the assets objectively, predictions of their relative value are also predictions about objective things, not just about opinion. Any information about what employment policies a candidate would choose, and about the consequences of those policies, could be relevant.

More in Robin Hanson’s paper on “decision markets” —PDF file.

And read Mike Giberson’s comments on the Patri Friedman blog post. (He likes it and thinks I was too harsh on it.)