Thursday, October 16, 2008
Are prediction markets the way to replace voting?
My friend Jonathan Palfrey commented on a recent post that perhaps the seeds of destruction of democracy lie in the fact that so many voters are uninformed. If that is so, perhaps something more like prediction markets could be used to replace the traditional vote. Prediction markets, such as Intrade.com are better at predicting the outcome of events than polls are. The main reason is that instead of simple opinions,m which may be delivered without thought or knowledge, they are more like bets on an outcome. The "voter" has some real money at stake. Much as has been found that people will lose weight more reliably when they have money at stake, so do they become more accurate in prediction when they have something to lose by being wrong.