“Some men have been found to denounce and deride the modern system – what they call the capitalist system. The modern system is based on liberty, on contract, and on private property.” (1883)

Compare Sumner’s description of key elements with that from Elhanan Helpman’s recent survey The Mystery of Economic Growth, which, after 141 pages discussing the current state of academic debate on economic development, concludes

“Although it has been established that property rights institutions, the rule of law, and constraints on the executive are important for growth, the exact ways in which they effect income per capita are not well understood.”

Cautiously, hesitantly, after a hundred and twenty years during which academic opinion almost unanimously rejected “the modern system . . . based on liberty, on contract, and on private property,” we have come full circle. Had Sumner’s institutional insights been considered expert opinion throughout this period and successfully implemented in nations around the world, poverty could have been eliminated long ago; imagine what a different world we would be living in if our universities had churned out generation after generation of Sir John Cowperthwaites, of all nationalities, each of whom advocated persistently for classical liberal economic policies in government, journalism, teaching, research, etc.

Even Helpman, however, doesn’t cite the correlations between increased economic freedom (as measured by the Fraser Index) and increased rates of economic growth. Worse yet, Jeffrey Sachs, Director of the UN Millennium Project, Scientific American columnist, and probably the most influential economist on the planet, explicitly denies that economic freedom has any relationship to economic growth. His NYT best seller, The End of Poverty, points out that economic growth is not correlated with the level of economic freedom, and then moves on without further discussion. Given the evidence that increased economic freedom, rather than level of economic freedom, is the salient variable, it is mysterious why he ignores this evidence.

Meanwhile, there are investment funds that explicitly focus on economic freedom indices, and successful investors have acknowledged similar principles throughout this period.

How can we improve the dissemination of valuable perspectives on how to alleviate poverty? Clearly the academic reputation system has not been an efficient mechanism for discovering and disseminating this information.

Reputational bets, such as the famous Ehrlich-Simon bet on resource scarcity, are a start. I’ve proposed a reputational bet between Jeffrey Sachs and Bill Easterly in which we compare, twenty years from now, the twenty nations with the largest gains in economic freedom with the twenty nations that have received the most foreign aid, excluding those in both categories, and see which collection experiences the largest average increase in per capita income. Sachs would refuse such a bet, knowing that he would lose, and would thereby be forced to acknowledge that institutions generally, and those that promote economic freedom in particular, do, in fact, have important implications for economic growth. He could no longer blithely mislead global institutions, political leaders, NGOs, the scientific community, and the public.

But tying academic reputation to predictive ability more broadly would have more profound repercussions for knowledge dissemination and reputation. We need to acknowledge the utter failure of academia, outside the hard sciences, as an efficient system for knowledge generation and dissemination (What exactly are the net social returns on our 120 year investment in academic sociology?). Prediction markets, success in which is tied to academic reputation in relevant fields, would profoundly change the process through which we identified and disseminated socially-validated expertise.

I’ll take credit for creating some ideas the world has found useful, but I have completely failed both the market test and the academic test. That is, I can’t convince any business to let me join them to deliver my ideas at scale, and I can’t convince any top journal to publish my ideas.

I continue to see prima facie evidence that Hanson’s work will likely change the world in significant ways and that he is a reasonable candidate for a Nobel Prize. To be fair, I assume that Hanson is referring to the slow pace at which his work on decision markets has received attention and/or been implemented. But given his contributions to both prediction and decision markets, his remark seems myopic.

Many economists have won Nobel prizes largely for the creation of productive new fields of inquiry, including Gary Becker (sociological applications of economics), Vernon Smith (experimental economics), James Buchanan (public choice theory), and Ronard Coase (law and economics). While Hanson is not the sole creator of the prediction markets field, he is certainly a key founder whose “Could Gambling Save Science?” is, I predict, still in its early stages in terms of its professional recognition as a source of fruitful ideas. (Assuming that this paper eventually gets the recognition that it deserves, his greatest challenge with the Nobel committee will then be that he had the poor sense to write it before he received a Ph.D., thus potentially putting him in the same category as the great Gordon Tullock: Not certified to win a Nobel prize).

Masse argues persuasively that Hanson’s decision markets concept is ignored by real world decision makers for much the same reason that most adolescent males would not be interested in new and improved dildos. I suspect that “Could Gambling Save Science?” has received less than is its fair share of attention from academics for similar reasons. In both cases, Hanson is proposing a disruptive innovation that has the potential to undermine the work and lower the status of many current stakeholders and gatekeepers while potentially allowing many interlopers in who have not proven themselves in the existing status systems.

This delayed recognition need not be a matter of conspiracy, but rather merely incentives combined with the cognitive biases that Hanson articulated in his original paper. Hanson’s premise is that the algorithms by means of which academic decision-making takes place are themselves systematically flawed. Given his keen understanding of the failures of existing decision-making in both academia and the real world, it is premature for him to suggest that he has failed in any sense whatsoever.

Between cognitive biases, information and search costs leading to institutional inertia, legal obstacles, and adverse incentives faced by many current gate-keepers and decision-makers we could probably come up with multiple plausible stories regarding why Hanson’s ideas have not been adopted more quickly. (I would hope that Bee Hossenfelder’s difficulty in understanding Hanson’s ideas in a recent conversation at his “Overcoming Bias” blog illuminates for him the magnitude of the cognitive biases and cognitive costs that are preventing more rapid transmission even among very “smart” people who actually spend time trying to understand him.) That said, if the ideas are indeed better, in terms of adding greater value in their respective domains, then over time I would expect them to be adopted. They will often be adopted in the first instance by new entrepreneurial entities which are designed from the ground up with a novel set of internal institutional incentives. As someone who has both started, and promoted, such new entitites it is obvious to me that, to state the banal, it takes time to do so.

Relative to 1990, prediction markets have come a long way in terms of both academic recognition and public implementation. Decision markets, too, will gradually be implemented at some scale, somewhere, largely after prediction markets have become far more familiar and ubiquitous. If both prediction markets and decision markets, twenty or thirty years from now, turn out to be conceptual innovations with a public impact as large as the conceptual innovations introduced by Becker, Smith, Buchanan, or Coase, then Hanson is likely to be a serious candidate for a Nobel prize.

http://www.flowproject.org/Downloads/How%20to%20Avoid%20Wasting%20$60B.pdf

I am looking for papers addressing the topic of prediction markets to evaluate the effectiveness of foundation giving. I am also looking for authors who would be especially appropriate to address this topic (but who may not yet have done so). It would be useful to have at least some representation from those who have actually implemented corporate or other organizational prediction markets in addition to prediction market scholars. It is likely that we will commission papers for this conference from invited thought leaders and pay a small stipend for those papers and for conference attendance. The conference will be scheduled after core thought leaders have been identified for participation to ensure that the timing is convenient for them. You may write suggestions in the comments or send suggestions privately to me at michael@flowidealism.org.