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Date: Wed, 30 Aug 2006 16:47:32 -0400 (EDT)
To: Andrew Reeves <andrew.reeves &AElig wayne.edu>
cc: Steven Reeves <steven &AElig aptigi.com>, Monica Christy <mchristy &AElig deloitte.com>,         Alex Marschall <alexthegerman2000 &AElig yahoo.com>,         improvetheworld &AElig umich.edu
From: Daniel Reeves <dreeves &AElig umich.edu>
Subject: Yootles, Capitalism, Futarchy
Status: O

I agree with you about US politics and I see we don't disagree about the 
nature of capitalism after all.  The Paul Graham essay is an excerpt from 
his book, Hackers and Painters.  He's an influential thinker in the 
computer science community (aka, the hacker community) who writes 
extremely readable essays on all manner of topics.

What I take issue with is your dogmatic clinging to One Woman, One Vote 
for all situations and all sized groups.  It obviously breaks down in the 
extreme of two-person groups where all votes are either unanimous or dead 
ties.  For whole communities, sure, straight-up voting.  I'm targeting 
small groups where everyone knows everyone and everyone can speak up. 
It's undeniable that a lot of explicit negotiation, compromising, quid pro 
quoing, etc goes on in small group decision-making.  Yootling imposes some 
structure on that chaos and addresses some classic pitfalls like 
groupthink.

Basically, small groups and societies are two fundamentally different 
beasts.

I'm thinking about society-scale decisions too though and am excited to 
argue this.  Below is a short manifesto about a proposed form of 
government that I predict (75%; Bethany?) you'll hate:

Futarchy: Vote Values, But Bet Beliefs
   by Robin Hanson, August 2000

     This short "manifesto" describes a new form of government.
     In "futarchy," we would vote on values, but bet on beliefs.
     Elected representatives would formally define and manage an
     after-the-fact measurement of national welfare, while market
     speculators would say which policies they expect to raise
     national welfare.

Democracy seems better than autocracy (i.e., kings and dictators), but it 
still has problems. [...] Poor nations (many of which are democracies) are 
those that more often adopted dumb policies, policies which hurt most 
everyone in the nation. And even rich nations frequently adopt such 
policies.

These policies are not just dumb in retrospect; typically there were 
people who understood a lot about such policies and who had good reasons 
to disapprove of them beforehand. It seems hard to imagine such policies 
being adopted nearly as often if everyone knew what such "experts" knew 
about their consequences. Thus familiar forms of government seem to 
frequently fail by ignoring the advice of relevant experts (i.e., people 
who know relevant things).

Would some other form of government more consistently listen to relevant 
experts? Even if we could identify the current experts, we could not just 
put them in charge. They might then do what is good for them rather than 
what is good for the rest of us, and soon after they came to power they 
would no longer be the relevant experts. Similar problems result from 
giving them an official advisory role.

"Futarchy" is an as yet untried form of government intended to address 
such problems. In futarchy, democracy would continue to say what we want, 
but betting markets would now say how to get it. That is, elected 
representatives would formally define and manage an after-the-fact 
measurement of national welfare, while market speculators would say which 
policies they expect to raise national welfare. The basic rule of 
government would be:

     When a betting market clearly estimates that a proposed policy would 
increase expected national welfare, that proposal becomes law.

Futarchy is intended to be ideologically neutral; it could result in 
anything from an extreme socialism to an extreme minarchy, depending on 
what voters say they want, and on what speculators think would get it for 
them.

Futarchy seems promising if we accept the following three assumptions:

     * Democracies fail largely by not aggregating available information.
     * It is not that hard to tell rich happy nations from poor miserable 
ones.
     * Betting markets are our best known institution for aggregating 
information.

GDP is today the most common measure of national wealth. It seems hard for 
frequent travelers to escape the impression that people in high GDP 
nations tend to be richer and better off than those in low GDP nations. 
Economists thus tend to be willing to recommend policies that 
macroeconomic data suggest are causally related to increasing GDP. It 
seems that it is not that hard to, after the fact, tell rich satisfied 
nations from poor miserable ones. GDP may be good enough, and with the 
full attention of our elected representatives, we should be able to do 
even better, such as by including happiness, inequality, health, leisure, 
and environment measures.

If we can measure how rich nations are, we can use such measurements to 
settle bets. This is good because betting markets, and speculative markets 
more generally, seem to do very well at aggregating information. To have a 
say in a speculative market, you have to "put your money where your mouth 
is." Those who know they are not relevant experts shut up, and those who 
do not know this eventually lose their money, and then shut up. 
Speculative markets in essence offer to pay anyone who sees a bias in 
current market prices to come and correct that bias.

Speculative market estimates are not perfect. There seems to be a 
long-shot bias when there are high transaction costs, and perhaps also 
excess volatility in long term aggregate price movements. But such markets 
seem to do very well when compared to other institutions. For example, 
racetrack market odds improve on the predictions of racetrack experts, 
Florida orange juice commodity futures improve on government weather 
forecasts, betting markets beat opinion polls at predicting U.S. election 
results, and betting markets consistently beat Hewlett Packard official 
forecasts at predicting Hewlett Packard printer sales. In general, it is 
hard to find information that is not embodied in market prices.

A betting market can estimate whether a proposed policy would increase 
national welfare by comparing two conditional estimates: national welfare 
conditional on adopting the proposed policy, and national welfare 
conditional on not adopting the proposed policy. Betting markets can 
produce conditional estimates several ways, such as via "called-off bets," 
i.e., bets that are called off if a condition is not met.

For a more detailed and academic discussion of futarchy, see "Shall We 
Vote on Values, But Bet on Beliefs?".

http://hanson.gmu.edu/futarchy.pdf


--- \/   FROM Andrew Reeves AT 06.08.30 14:55 (Today)   \/ ---

>   First, let me state that the debate between Cam and Danny regarding
> how one could beat the Yootles system really convinced me that I do not
> understand the Yootles system and thus nothing I say below should be
> construed as a direct criticism of the Yootles system. Second, the
> quoted essay by Paul Graham is really excellent; I have never seen a
> better and more lucid exposition of capitalism and I agree with every
> word of it. Thank you for sharing it with me.
>   I have never objected to unequal distribution of wealth in the world
> and I do not resent rich people using it for their own benefit. Of
> course some will do that decently, such as building big art collections
> and others indecently, like lighting their cigars with hundred-dollar
> bills (this is no metaphor; actual cases are on record in pre-war
> Hungary) but when all is said, all that is still their own business.
> But when it comes to influencing legislation, then it ceases to be
> their own business. All of us are involved in the effects of public
> decision making. Of course, that again can be done decently and above-
> the-board like lobbying, or indecently like promoting the election of
> politicians completely in their pocket (Al Capone' stooges in Chicago
> in the 1920's are a good example of the latter). I am really scared
> stiff of characters like Carl Rove whom President Bush has publicly
> called "the architect" of his second victory who can "sway" elections
> (sounds familiar??) by playing on public emotions like it was a harp:
> patriotism, religion, gays, etc. all have their special strings that
> can be plucked when and where and as necessary. The result then is an
> election outcome that prompted YOU, Danny, to consider emigration from
> this country in abject disgust if my memory serves me right.
>   All this has produced in me a total horror of all maneuvers
> designed to sway the outcome of elections by any means other than
> persuasion of the voters ON THE ISSUES AT DISCUSSION. Corollary
> "value" issues must be guarded against with hawk eyes as must all
> other distractions or "weighting" the vote with how important or how
> insistent the voter is. I believe that the ONE MAN, ONE VOTE principle
> was actually developed in this country under Washington and Jefferson
> or at least it was first implemented by them. Prior to that, MEANS was
> a criterion in voting, sometimes in direct proportion to the size of
> it: a direct ancestor of the yootles system, it seems, as Danny now
> tries to apply it. But that also means the scuttling of democracy as
> we painfully developed it step by step during the past 200 years.
> Of course, further work is necessary but going back to unabashed
> buying of influence, even in such small matters going or not going
> to Yosemite, is hardly the way to do it.
>                                            Love, GGPA & S

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