Robin Hansons blah blah on futarchy (using conditional prediction markets to govern a country) – [VIDEO]

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Robin Hanson debates a Mencius Moldbug on prediction markets, decision markets, and&#8230- futarchy:

Foresight 2010 debate: Futarchy from Monica Anderson on Vimeo.

Download this post to watch the video &#8212-if your feed reader does not show it to you.

Who cares about that Mencius Moldbug anyway?

Previously.

Debate is raging between Robin Hanson and the futarchy critics

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Robin Hanson comments on Paul Hewitt&#8217-s blog.

Paul Hewitt comments on Eric Crampton&#8217-s blog.

Paul Hewitt comments on Robin Hanson&#8217-s blog. Many exchanges with Robin Hanson. Read it all.

Paul Hewitt:

[…] My point is that the case for prediction markets has not been made, at all. There is a tiny bit of proof that they are as good as alternative methods, and in a very few cases, very slightly better. Also, you need to be aware that even the slightly better prediction markets had the benefit of the alternative forecasting institution available to it. That is, the official forecasters at HP were also participants in the ever-so-slightly better prediction markets. […]

&#8211-&gt- I personally stay away from any discussion about conditional prediction markets (and futarchy). I prefer focusing on the &#8217-simple&#8217- prediction markets.

If he had balls, Robin Hanson would debate Paul Hewitt, instead.

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Paul Hewitt: The Essential Prerequisite for Adopting Prediction Markets

It is a long text, so I will post again about it, in the near future. (Happy Xmas, by the way.)

ADDENDUM: Saturday, January 16, 2010: Debate between Robin Hanson and Mencius Moldbug

Prediction & Decision Markets – Robin Hanson Edition

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Presentation:

Prediction &amp- Decision Markets – (PPT file) – by Robin Hanson – 2008-04-17

And, that one, for your curiosity&#8230- really fascinating ( :-D ):

Evolutionary Game Theory of Interstellar Colonization – (PPT file) – by Robin Hanson – 2008-05-26

Previous blog posts by Chris F. Masse:

  • Kudos to BetFair’s e-mail marketing team?
  • Conditional prediction markets about oil price and SegWay sales… Like the idea, Robin Hanson?
  • Justin Wolfers [*] is the most cited prediction market economist
  • The Orb @ Texas Tech University
  • IS IT SAFE TO LOCATE A PREDICTION EXCHANGE NEAR A RIVER???
  • RIVER RISING. POWER PLANT CLOSED. IOWA ELECTRONIC MARKETS AT RISK? DEVELOPING…
  • U.S. COAST GUARDS DEPLOYED TO SAVE THE IOWA ELECTRONIC MARKETS

The Marketing Of The Reading Of The Public Prediction Markets = What Robin Hanson has deep trouble with, and what the prediction exchanges (e.g., InTrade-TradeSports, BetFair-TradeFair) havent fully computed yet

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Robin Hanson on &#8220-silly&#8221- research topics:

[M]ost people think futarchy (government by [prediction] markets) is silly, even though most think it has a decent chance of performing well […].

Decision markets and decision-aid markets are 2 great concepts pushed by Robin Hanson, the world&#8217-s #1 researcher in the field of prediction markets. But they are just inventions, not innovations. What is important is to find out which population segment or which class of business executives find this stuff productive and helpful.

In that perspective, his presidential prediction markets at InTrade are good ideas, and the liquidity there (helped by an AMM) is decent enough. But they are just betting supports, right now. I haven&#8217-t seen any opinion leaders taking them as a trusted source of information, which is the damn goal. We will see whether that comes true in the future.

If Robin Hanson were really serious in finding a killer app for his concept of decision-aid markets, he would of course come up with conditional prediction markets in the realm of sports, which is the most popular topic in the real-money prediction markets. Alas, I often have the impression that the academics in the field of prediction markets have profound disdain for sports prediction markets.

Robin Hanson on seeking decision advice:

[…] We rarely seek out advice, and when we do it is usually on much smaller decisions. […] One reason we avoid getting advice is that it lowers our status relative to those who give advice. Of course this is also makes asking for advice a good way to flatter and supplicate. Not sure if this explains the puzzle though. But all this doesn&#8217-t seem to bode well for fielding decision markets on the biggest organizational decisions.

Allow me to digress from there. I think that the reading from the prediction markets is like an advice &#8212-in that you have to accept the market message as an authority. If you are an expert with direct access to primary sources of information, I don&#8217-t think you&#8217-d rely on the message from the public prediction markets (which are information aggregation laggards). The big mistake from Robin Hanson and the others has been to sell the public prediction markets as tools for the decision makers. That could happen, but marginally, I believe. Experts and decision makers will firstly want to rely on their primary sources of information and on their analysis.

I think that the population segment which is the more likely to appreciate the consumption of market-generated probabilities would be composed of people who want a chopper view of world events. Prediction market journalism should satisfy this dashboard need.

[Please note that the thoughts expressed above refer to the public prediction markets (as stated in the post title –think BetFair-TradeFair, InTrade-TradeSports, Betdaq, HubDub, NewsFutures, and Hollywood Stock Exchange) —not the enterprise prediction markets, which is a horse of another color.]

Robin Hanson on decision-aid markets:

I don&#8217-t recall ever turning down a chance to consult on prediction markets for a Fortune-500 company. If you know of an opportunity that I&#8217-m missing, do let me know.

Doc, are there more Fortune-500 executives and managers attending a conference on extra-terrestrials or a conference on finance? :-D

How Decision Markets Work (with emphasis on InTrade) – by Robin Hanson

No GravatarVIDEO – (it&#8217-s a Guatemala-based website) – 2007-10-24

I have clicked on the second blue link, on that webpage, and Window Media Player opened, and now I am watching The Master Of All Universes lecturing a group of politics students&#8230-

The main difficulty in developing efficient public policies is misinformation and false beliefs. The traditional information institutions are the media academics, and informal communications. These institutions have limitations in providing reliable, efficient, useful and enough information to make decisions. Speculative markets base their profits on the prediction of price patterns and are proving to be an efficient information institution. Betting markets have been better and faster predictions than experts because manipulators develop more accurate information. Therefore, speculative and betting markets have to become the central institution on political institutions in order to have effective public policies.

Click here to read the chapter &#8220-Decision Markets for Policy Advice&#8221-.

Great. But the second part of the video is more painful to follow. The students&#8217- questions are sometimes inaudible.

Previous blog posts by Chris F. Masse:

  • Mat Fogarty’s Xpree needs a mini Chris Hibbert.
  • Did you know that Real Clear Politics (a political news aggregator in bed with InTrade) is now owned by Forbes?
  • Easter Egg made in Mathematica
  • MIDAS ORACLE POWER: People googling about BetFair’s new bet-matching logic are automatically directed to our group blog. BetFair’s SEO can return to the locker room.
  • David Pennock, a respected expert in prediction markets and market design, discusses some aspects of BetFair’s new bet-matching logic.

Merger Markets on Microsoft-Yahoo

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HP began to explore prediction markets in 1996, but did not even consider applying them to the 2002 HP-Compaq merger. Similarly, Yahoo and Microsoft are two of the companies mentioned most often as being involved in prediction markets (along with their main competitor Google), but I&#8217-ll bet none are considering the by-far-most-valuable markets they could create, on their just-announced proposed merger.

Decision markets could say whether this merger is good for shareholders, by estimating the combined stock price given a merger, and given no merger. Similarly, decision markets could say whether this merger is good for these firms&#8217- customers, by estimating the price and/or quantity of web ads given a merger, and given no merger. This might help convince regulators to approve the merger.

My main doubt here is whether ad price and quantity are good enough measures of the merger&#8217-s social benefits – what other outcomes could such markets estimate, to speak more clearly? And this is a very clear demonstration that these companies are just not serious about finding the highest value applications of prediction markets.

Cross-posted from Overcoming Bias.

Predictocracy = Market Mechanisms for Public and Private Decision Making

No GravatarRobin Hanson:

[&#8230-] The main problem with using [Michael] Abramowicz&#8217-s book as a &#8220-technical manual&#8221-, however, is that he&#8217-s never actually seen, much less touched, most of the blocks he describes. His conclusions are not supported or tested by math models, computer simulations, lab experiments, field trials, nor a track record of successful past proposals – it is all based on his untested intuitions. And he doesn&#8217-t seem inclined to do any such testing himself – he hopes his book will inspire others to do that. There is of course a spectrum of rigor in how solidly one can support a claim. Most business decisions are based on far less rigor that elite academics often demand, and there is surely a place for &#8220-brainstorming&#8221- speculation. Compared with most academics, I admit I have often been more than toward the speculation end of the spectrum, though I have tried to test my speculations via math models, lab experiments, field trials, and have arguably collected a modest track record of success. [&#8230-]

Michael Abramowicz&#8217-s response:

[&#8230-] The incentives provided by two of my technical proposals (the decentralized subsidy approach and the nobody-loses prediction market) are sufficiently straightforward to me that math seems superfluous to me, though I agree that field tests comparing these with alternatives would be useful. Two of the proposals (the text-authoring market and the market web) could certainly benefit from experimentation, but the software needed to implement them would be considerably more complicated than what is needed for existing prediction markets. [&#8230-]

Robin Hanson&#8217-s second take.

Michael Abramowicz&#8217-s post.

Robin Hanson on futarchy vs. predictocracy.

Michael Abramowicz.

Robin Hanson.

I will blog about this book, once I have read it, in the near future.

Predictocracy = Market Mechanisms for Public and Private Decision Making

All the book is online, at the web address above. You can also buy it at bookshops, or at Amazon.

Predictocracy

Read the previous blog posts by Chris F. Masse:

  • Many people twitter on prediction markets.
  • Folks, when you have something important to say, write up a full post, not a comment.
  • Prediction Market Journalism
  • TechCrunch is 221 times bigger than Midas Oracle.
  • Earthquake measuring 9.0 or more on Richter scale to occur anywhere on or before December 31, 2008
  • Why Midas Oracle (and not TV news shows or print newspapers) will dominate the future.
  • The Six Degrees Of Separation

Markets for Telling CEOs to Step Down

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Robin Hanson (back in April 1996):

One of the biggest problems with existing corporate capitalism is keeping CEOs (chief executive officers) accountable to their shareholders. Unaccountable CEOs can give themselves huge salaries and perks, discriminate freely in hiring and promotion, and build empires rather than shareholder value.

In theory, boards of directors oversee CEOs, and can be sued by shareholders should they fail in that task. But in practice such failure is hard to prove, board members are often nominated by the CEO, and CEOs often put each other on their boards. In theory shareholders can dump the current board or CEO at annual meetings, but a commons greatly reduces the incentives for any one shareholder to mount an expensive campaign to find and convince other shareholders. In principle someone could buy out the whole company, dictate changes, and then sell the better-run company at a profit, but existing law and CEOs now lay many obstacles in this path.

The biggest problem with unaccountable CEOs is that they don&#8217-t know when to step down and let someone else run the company. The value of companies often jump when such a CEO dies. So a recent &#8220-Just Vote No&#8221- campaign focuses on this problem, and proposes that dissatisfied shareholders withhold their vote in a certain way, in order to signal they think the current management should step down. The companies with the highest no votes are then publicized, to try and shame management into action.

The main proponent of this Vote No campaign thinks the following proposal of mine has promise. I propose to create, for each stock, a separate market in that stock for trades which are &#8220-called-off&#8221- if the CEO does not step down in the next year. The price of the stock in this market should indicate the market&#8217-s expectation of the value of that company with a different CEO. If that stock price is consistently and significantly higher than the ordinary stock price, that should be a clear market signal, from informed traders, for the CEO to step down. (If there is no price, because there is no trading, then there is no signal.)

Ordinarily CEOs respond to statistics showing how poorly their company is fairing relative to similar companies by explaining how they are really different. And they respond to statistics of unhappy shareholders by pointing out how little incentives any one of them has to become well informed. These excuses should be blunted by my proposal, and board members may more plausibly fear legal action for ignoring these market signals.

This proposal is an example of a more general concept of policy markets.

Robin Hanson&#8217-s comment on my previous blog post:

You make a valid point about there being a difference between CEO futures and decision markets. It is the board, not the CEO, who we might hope would be willing to overrule the CEO ego. And I&#8217-ve had a web page arguing for CEO decision markets since 1996. [See above.]

Robin Hanson (in Forbes in 2006):

[…] My idea: Set up two new stock markets where investors would be making not outright bets on the future of a company but conditional bets. In one market the trades are consummated only if the current chief executive remains in place at the end of the current quarter. In the other market the trades are consummated only if the incumbent is bounced out by the end of the quarter. The price spread between these two markets would send a signal about whether the boss should stay or go.

Say Eisner is the current boss and you own one share of Disney you want to sell. Instead of selling on the New York Stock Exchange for, say, $30, you could do simultaneous sell orders, each for one share, on the two alternative markets. Perhaps Disney is trading in the Stays Put market at $29 and in the Early Retirement market at $31. If Eisner does keep his job, only the first trade becomes valid: You give up your share and get $29. If he gets the ax, only the second trade is valid and the buyer (probably a different buyer) gives you $31.

Just as the $30 price on the Big Board reflects the collective wisdom about the value of Disney, the $29 Stays Put and the $31 Early Retirement prices would reflect the collective wisdom about relative values under different management scenarios. Spreads would open up because sellers (or buyers) in the alternative markets would often do only one of the two trades. If you happen to think Disney is worth $30 a share overall but would be disappointed to see Eisner leave, you would sell only in the Early Retirement market. If he does get bounced, you&#8217-re happy to have the $31 cash- if he stays put, you are happy to continue owning the stock. On the other side of your trade: a hedge fund that thinks Disney would be worth $32 if a new manager came in.

The directors&#8217- job would be to listen to the markets. If a wide enough spread opens up in favor of a departure&#8211-maybe 1%&#8211-get out the pink slip. […]

Previously: PaddyPower&#8217-s betting lines on CEO exits + Marginal Revolution on CEO exit betting lines

Marginal Revolutions Tyler Cowen re-writes history to favor his GMU colleague.

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I respectfully disagree with that.

#1. BetFair floated CEO Resignation event derivatives back in 2004 &#8212-2 years before Robin Hanson&#8217-s CEO Firing idea [CORRECTION: see below], and 3 years before PaddyPower&#8217-s press release.

#2. Robin Hanson was about decision markets, in his Forbes Op-Ed &#8212-neither about prediction markets nor book betting.

#3. The main obstacle of implementing Robin Hanson&#8217-s concept of decision markets is the business executives&#8217- egos. Why would they outsource the decision making to a crowd machine if the added value is marginal? Publishing complacent blog posts on the premier economics blog won&#8217-t solve this problem.

Trying to sell decision markets to business executives is like trying to sell robotized dildos to young, horny men. Whatever the merit of the product, they don&#8217-t need it &#8212-they prefer using their own thing (if you see what I mean). :-D

&#8212-

UPDATE: Comment from Robin Hanson&#8230-

You make a valid point about there being a difference between CEO futures and decision markets. It is the board, not the CEO, who we might hope would be willing to overrule the CEO ego. And I&#8217-ve had a web page arguing for CEO decision markets since 1996.

&#8212-

Robin Hanson (back in April 1996):

[…] The main proponent of this Vote No campaign thinks the following proposal of mine has promise. I propose to create, for each stock, a separate market in that stock for trades which are &#8220-called-off&#8221- if the CEO does not step down in the next year. The price of the stock in this market should indicate the market&#8217-s expectation of the value of that company with a different CEO. If that stock price is consistently and significantly higher than the ordinary stock price, that should be a clear market signal, from informed traders, for the CEO to step down. (If there is no price, because there is no trading, then there is no signal.)Ordinarily CEOs respond to statistics showing how poorly their company is fairing relative to similar companies by explaining how they are really different. And they respond to statistics of unhappy shareholders by pointing out how little incentives any one of them has to become well informed. These excuses should be blunted by my proposal, and board members may more plausibly fear legal action for ignoring these market signals.

This proposal is an example of a more general concept of policy markets.