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.
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That's an interesting idea. But how would you implement it? As I understand it, a prediction market tries to predict a future event, and the successful predictions get a payoff.
Thus, a prediction market can be used to predict the result of an election; but how could it be used to replace an election? What would determine the payoff?
The other problem would be that people would protest at being asked to pay to vote; but perhaps they could be offered the possibility of gain without being required to put down an initial stake. In this case, the initial stake would in effect come out of general taxation.
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