Crash problems for total futarchy

post by Stuart_Armstrong · 2013-05-15T10:41:59.215Z · score: 6 (8 votes) · LW · GW · Legacy · 16 comments

Futarchy holds great promise for dealing with all the morass of poor decision making in our governments and corporations. For those who haven't heard of it, the main concept is to use betting markets, where people place bets on the expected outcome of a policy, and the decision-makers choose the policy that the market decrees is most likely to achieve their desired outcomes. Robin Hanson summarises it as "Vote Values, But Bet Beliefs".

The approach, however, could lead to problems in a large financial crisis. When a large financial bubble bursts, many things change: liquidity, risk aversion, volatility, the competence of the average investor. If the betting markets are integrated into the general market (which they would be), then they would be affected in the same way. So at precisely the moment when decision makers need the best results, their main tools would be going haywire.

This would be even worse if they'd been depending on the betting markets for their decisions, operating merely as overseers. At that point, they may have lost the ability to make effective decision entirely.

Since isolating the betting markets from the swings of the rest of the market is unrealistic/impossible/stupid, we should aim for a mixed governance model - one where betting markets play an integral part, but where the deciders still have experience making their own decisions and overriding the betting markets with some regularity.

16 comments

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comment by pcm · 2013-05-15T20:25:04.643Z · score: 6 (8 votes) · LW · GW

I question whether it's wise to make new rules during a financial crisis. I predict that a mature futarchy will set rules in advance of a crisis that will better deal with it than rules made during the crisis would. (In an immature futarchy, markets will influence deciders somewhat like how polls influence them now).

comment by Stuart_Armstrong · 2013-05-16T08:40:03.616Z · score: 1 (1 votes) · LW · GW

I question whether it's wise to make new rules during a financial crisis.

But unstable betting markets may be shouting out for new rules in a crisis. We don't know in what direction the betting markets will be compromised.

I'm also less convinced that we can plan, ahead of time, for the best ways of getting through all crises that affect the financial markets. Stupid example: a foreign attack triggers a stockmarket sell off. Doing nothing is not the correct thing to do - but what is? What if it's a misfired nuke from a future somewhat-reformed and apologising North Korea - now complicated decision have to be taken, highly dependent on the exact situation. We can't plan for these situations, so if we can't use the betting markets reliably, we need to preserve some other decision making skills.

comment by pcm · 2013-05-16T19:11:13.283Z · score: 0 (2 votes) · LW · GW

I envision markets generating rules, but not making all decisions. I don't see any indication that futarchy would take much discretion away from the people who currently make military decisions.

comment by Stuart_Armstrong · 2013-05-16T22:19:42.177Z · score: 1 (1 votes) · LW · GW

If we can maintain that kind of balance between the deciders and the betting markets, things should be fine. The problem would be if the betting markets become dominant in decision making (and choosing how to respond to a seemingly accidental firing is a political, not a military decision).

comment by OrphanWilde · 2013-05-15T14:22:41.197Z · score: 4 (6 votes) · LW · GW

What makes you think the "deciders" are going to make better decisions when the market is volatile? The volatility is going to represent, after all, uncertainty on the pool of betters.

(The bigger problem for such a governance model to my eye is that betting markets provide -information-. I don't see that this information is freely convertible into -decisions-. If you're betting on decisions, effectively you're voting with money.)

comment by John_Maxwell (John_Maxwell_IV) · 2013-05-16T06:07:30.305Z · score: 0 (0 votes) · LW · GW

Might it be possible to have a kind of uncertainty feedback loop, where volatility in some areas created uncertainty, and therefore volatility, in other areas, until everything was maximally uncertain? :)

comment by khafra · 2013-05-15T16:32:20.046Z · score: 0 (0 votes) · LW · GW

I don't see that this information is freely convertible into -decisions-. If you're betting on decisions, effectively you're voting with money.

The governance model is "vote on values, bet on beliefs." It's the "values" part that lets you convert information into decisions.

comment by rlp10 · 2013-10-04T05:46:14.795Z · score: 0 (0 votes) · LW · GW

Could futarchy be used to run a business? Setting up a business is much easier than taking over the government of a country!

Bets could be proposed like: "If policy X is adopted then the share dividend on such and such a date will be higher than if it is not adopted". Bets with the highest support could then be adopted and over time, the share dividend would steadily increase.

comment by dimension10 · 2016-02-07T05:33:42.646Z · score: 0 (0 votes) · LW · GW

Isn't it already, in some sense? The whole idea of a futarchy is shareholders voting for their self-interest so it also works in the interests of everyone else. This is pretty much what goes on in companies where shareholders get a vote proportional to their shares held.

comment by Stuart_Armstrong · 2013-10-23T12:27:50.491Z · score: 0 (0 votes) · LW · GW

That would be a good experiment to run...

comment by Petruchio · 2013-05-17T14:11:41.972Z · score: 0 (0 votes) · LW · GW

I see the same biases and problems which occur in current financial markets occuring in this. Rumors, market manipulation, risky speculation leading to a bubble and insider information will all happen and will need to be regulated in order to be operable.

comment by wwz · 2013-05-15T16:46:04.308Z · score: 0 (0 votes) · LW · GW

So at precisely the moment when decision makers need the best results, their main tools would be going haywire.

And why are you assuming that currently "their main tools" go haywire less than they would with betting markets?

comment by Stuart_Armstrong · 2013-05-16T08:42:31.596Z · score: 2 (2 votes) · LW · GW

Because their current main tools are not correlated with financial crises. So there's no reason to suspect that governments get worse at making decisions simultaneously with financial crises - their processes, good or bad, will work as well as they do in any other crises.

If there's a big disaster (oil spill, earthquake), but the betting markets continue as before, it'll be fine. If the betting markets go haywire for a time, but there's no immediate crisis, we'll probably be ok as well. But when a financial crisis hits, both will be going wrong simultaneously.

comment by wwz · 2013-05-16T15:30:35.853Z · score: 1 (1 votes) · LW · GW

The way I see it current system is just less transparent (which is by itself not a feature). We can't measure how badly haywire current decision making system goes during financial (or other) crisis but that doesn't mean it's less correlated than a market would be.

Example: imagine making a decision while there's an angry mob outside. With bricks and all. And you, Prime Minister, are solely responsible for what happens next. If they don't like it, it's all on you. Doesn't happen in market scenario, does it?

comment by shminux · 2013-05-15T16:52:08.795Z · score: -2 (2 votes) · LW · GW

Since isolating the betting markets from the swings of the rest of the market is unrealistic/impossible/stupid, we should aim for a mixed governance model

What you suggest is a compromise, which is a fancy word for "inability to see and implement a positive-sum outcome".

A better approach, following Altshuller, is to figure out what features makes markets less than ideal and work on making them do good instead of fighting them.

comment by Stuart_Armstrong · 2013-05-16T08:47:58.275Z · score: 1 (1 votes) · LW · GW

A better approach, following Altshuller, is to figure out what features makes markets less than ideal and work on making them do good instead of fighting them.

The task of removing/containing bubbles and crashes from financial markets seems an extraordinarily hard task - and that's what would be needed.

What you suggest is a compromise, which is a fancy word for "inability to see and implement a positive-sum outcome".

Or "when you work with nails and screws, have both a hammer and a screwdriver in your inventory" :-)