[Question] Is now a good time to advocate for prediction market governance experiments in the UK?

[John_Maxwell]

I’m an American. I don’t understand UK politics. All I know is, there was once a PM named Liz Truss. Liz did something the markets didn’t like. Now PM Liz is no more.

Milton Friedman said: “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.” I don’t agree with Friedman on everything, but I like this theory of change.

Seems like PM Liz could’ve saved her job by letting speculators place bets conditional on her proposed policy, and only announcing its implementation if the conditional bets looked good. If we can convince the next UK government that conditional prediction markets are the best way to avoid the fate of Liz, this could be a step towards use of prediction markets to forecast the results of all kinds of UK policies on all kinds of endpoints.

Would this be a good thing?

Is there a chance I will get to see hedge funds placing bets on which UK policies will best reduce inequality or help the global poor within my lifetime?

[Ree]

The UK already has mechanisms to investigate the impact of proposed government policy, in this case the Office for Budget Responsibility which provides independent economic forecasts. The Chancellor and Prime Minister refused to allow the publication of these forecasts alongside the mini-budget that caused market turmoil. I’m not sure you can reasonably blame the quality of existing forecasting mechanisms when the relevant decision-makers were openly disregarding them.

[Larks]

John’s mechanism here is about getting better information for the PM; presumably she already saw the OBR report. Preventing publication doesn’t mean you didn’t pay attention.

[Ree]

There was no report, the OBR offered to update their forecasts to take account of the mini budget proposals but weren’t asked to. Even if there was a report though, and Truss/​Kwarteng read it, the fact they didn’t publish it would indicate that it contradicts their course of action. That doesn’t support the idea that improved forecasting would’ve led to better decision making.

[Larks]

Fair enough, I didn’t realize the report didn’t exist!

[John_Maxwell]

Thanks. This makes me less excited about prediction market advocacy.

I think it could still be a better time than average to advocate though. Announcing prediction markets could be a way for the next government to double down on good forecasting, and convince voters they won’t make the same mistake as the previous government.

[ChristianKleineidam]

Dominic Cummings wrote about how it’s hard to get UK politicians to say the things that voters want to hear according to polling data and thus hard to get them to maximize their chances of winning.

Getting them to give up part of their power over law-making would be much harder.

I’m an American. I don’t understand UK politics. All I know is, there was once a PM named Liz Truss. Liz did something the markets didn’t like. Now PM Liz is no more.

It’s not only that the market didn’t like it. Many people don’t like taxes for the rich to get cut.

[Bob Jacobs]

Won’t conditional prediction markets give rich people more ways to influence policy?
Let’s say the people of Examplestan have a large underclass who live paycheck to paycheck and a small upperclass who gets their money from inheritance. The government is thinking of introducing a bill that would make their tax revenue come less from paychecks and more from inheritance. Democracy advocates want to put it to a vote, but a group of futarchy lobbyists convince the government to run a conditional prediction market instead.

The market question is “If we replace the paycheck tax with an inheritance tax, will welfare increase?”. The large underclass has almost no money to bet that it will, while the small upperclass bets a large chunk of their money that it won’t. Predictably, more money is betted on it not increasing welfare and when the market closes, everyone gets their money back and the government decides not to implement it.

[Larks]

Powerful people are always going to have more influence (which will sometimes be good and sometimes be bad). The difference with futarchy is it incentivizes each individual to set aside their class interests because their individdual interests are in the opposite direction. The most profitable cases on prediction markets are ones where there is a large amount of irrational buyers on the other side.

[Bob Jacobs]

But is it in your individual interest? Is making enemies of your friends and family while losing a guaranteed lifelong stream of income for you and your children really worth it for the possibility of having a one time large payout?
What about with different probabilities? What if you think the policy has a 51% chance of helping the poor and a 49% chance of doing nothing. This would be a fantastic policy to try but even without coordination mechanisms like dominance assurance contracts, I doubt a self interested rich person would sacrifice their social network and lifelong stream of income for a 51% of having a one time large payout (actually less than 51% since it probably won’t be implemented due to the conditional prediction market).

[Larks]

I assume you could trade privately, in the same way that the stock market and many prediction markets currently work. So there wouldn’t need to be any negative social consequences. Perhaps regulators and the exchange could see your identity for compliance purposes.

[Bob Jacobs]

Allowing anonymous predictions causes a whole bunch of other problems. But even we could somehow get rid of coordination mechanisms like: dominance assurance contracts, the fear of losing your social network, or psychological loyalty towards your ingroup, is it really in your own interest to lose the source of income for you and your children for a <51% chance of a one time payout, or will the outcomes of conditional prediction markets be biased towards the interests of rich people?