This case depends a lot on the attitudes, sophistication, and transparency of the retro funders, so it’ll be useful for the retro funders to be smart and value-aligned and to have a clear public image.
Agreed. Is there a way to control the set of retro funders? (If anyone who wants to act as a retro funder can do so, the set of retro funders may end up including well-meaning-but-not-that-careful actors).
In a way this is similar to the above.
The cause is different though, in (1) the failure is caused by a version of the distribution mismatch problem, in (2) the failure is analogous to the unilateralist’s curse.
I think here the problem is that the issuers lied and had an incentive to lie.
In the failure mode I had in mind the issuer does not lie or keeps something a secret at any point. Only after realizing that the project is failing (and that the ex post impact will be zero if nothing dramatic happens), a new intervention is planned and carried out. That intervention is risky and net-negative, but has a chance to be extremely beneficial, and thus (due to the distribution mismatch problem) makes the certificate price go up.
What the issuers did is just something other than the actions that the impact certificate are about
In that case, are the retro funders supposed to not buy the certificates? (Even if both the ex ante and ex post impacts are very beneficial?) [EDIT: for example, let’s say that the certificates are for creating some AI safety org, and that org carries out a newly planned, risky AI safety intervention.]
The “human judgment filter,” which I’ve been calling “curation” (unless there are differences?) is definitely going to be an important mechanism, but I think it’ll fall short in cases where unaligned people are good at marketing and can push their Safemoon-type charity even if no reputable impact certificate exchange will list it.
(I’m not familiar with the details of potential implementations, but...) if profit-motivated speculators can make a profit by trading certificates that are not listed on a particular portal (and everyone can create a competing portal) then most profit-motivated speculators may end up using a competing portal that lists all the tradable certificates.
Agreed. Is there a way to control the set of retro funders? (If anyone who wants to act as a retro funder can do so, the set of retro funders may end up including well-meaning-but-not-that-careful actors).
That’s a big worry of mine and the reason that I came up with the pot. So long as there are enough good retro funders, things are still sort of okayish as most issuers and speculators will be more interested in catering to the good retro funders will all the capital. But if the bad retro funders become too many or have too much capital, it becomes tricky. The pot is set up such that the capital it has scales in proportion to the activity on the market, so that it’ll always have roughly the same relative influence on the market. Sadly, it’s not huge, but it’s the best I’ve come up with so far.
The other solution is targeted marketing – making it so that the nice and thoughtful retro funders become interested in the market and not the reckless ones.
In the failure mode I had in mind the issuer does not lie or keeps something a secret at any point. Only after realizing that the project is failing (and that the ex post impact will be zero if nothing dramatic happens), a new intervention is planned and carried out. That intervention is risky and net-negative, but has a chance to be extremely beneficial, and thus (due to the distribution mismatch problem) makes the certificate price go up.
Impact certificates are required to be very specific. (Something we want to socially enforce, e.g., by having auditors refuse vague ones and retro funders avoid them.) So say an issuer issues and impact certificate for “I will distribute 1000 copies of the attached Vegan Outreach leaflet at Barbican Station in London between April 1 and August 1, 2022. [Insert many more details.]” They go on to do exactly that and poll a few people about their behavior change. But in July, as they hand out the last few leaflets, they start to realize that leafletting is fairly ineffective. They are disappointed, and so blow up a slaughterhouse instead and are transparent about it. The retro funder will read about that and be like, sure, you blew up a slaughterhouse, but that’s not what this impact certificate is about. And if they issue a new impact certificate for the action, they have to consider all the risks of killing humans, killing nonhumans, going to prison, hurting the reputation of the movement, etc., which will make everyone hesitant to invest because of the low ex ante expected impact.
Just saw your edit: One impact certificate for a whole org is much too vague imo. Impact certificates should be really well defined, and the actions and strategy of an org can change, as in your example. Orgs should rather sell all their activities as individual impact certificates. I envision them like the products that a company sells. E.g., if Nokia produces toilet paper, then the rolls or batches of toilet paper are the impact certificates and Nokia is the org that sells them.
Orgs can then have their own classic securities whose price they can control through buy-backs from the profits of impact certificate sales. Or I also envision perpetual futures that track an index of the market cap of all impact certificates issued by the same org.
Impact certificates as small as rolls of toilet paper are probably a bit unwieldy, but AMF, for example, has individual net distributions that are planned thoroughly in advance, so that would be suitable. I’ll rather want to err on the side of requiring more verifiability and clarity than on the side of allowing everyone to create impact certificates for anything they do because with vague interventions it’ll over time become more and more difficult to disentangle whether impact has been (or should be considered to have been) double-sold.
(I’m not familiar with the details of potential implementations, but...) if profit-motivated speculators can make a profit by trading certificates that are not listed on a particular portal (and everyone can create a competing portal) then most profit-motivated speculators may end up using a competing portal that lists all the tradable certificates.
Yep, also a big worry of mine. I had hoped to establish the pot better by making it mandatory to put a little fee into it and participate in the bet. But that would’ve just increased the incentives for people who don’t like the pot jury to build their own more laissez-faire platform without pot.
My fallback plan if I decide that impact markets are too dangerous is to stay in touch with all the people working on similar projects to warn them of the dangers too.
Agreed. Is there a way to control the set of retro funders? (If anyone who wants to act as a retro funder can do so, the set of retro funders may end up including well-meaning-but-not-that-careful actors).
The cause is different though, in (1) the failure is caused by a version of the distribution mismatch problem, in (2) the failure is analogous to the unilateralist’s curse.
In the failure mode I had in mind the issuer does not lie or keeps something a secret at any point. Only after realizing that the project is failing (and that the ex post impact will be zero if nothing dramatic happens), a new intervention is planned and carried out. That intervention is risky and net-negative, but has a chance to be extremely beneficial, and thus (due to the distribution mismatch problem) makes the certificate price go up.
In that case, are the retro funders supposed to not buy the certificates? (Even if both the ex ante and ex post impacts are very beneficial?) [EDIT: for example, let’s say that the certificates are for creating some AI safety org, and that org carries out a newly planned, risky AI safety intervention.]
(I’m not familiar with the details of potential implementations, but...) if profit-motivated speculators can make a profit by trading certificates that are not listed on a particular portal (and everyone can create a competing portal) then most profit-motivated speculators may end up using a competing portal that lists all the tradable certificates.
That’s a big worry of mine and the reason that I came up with the pot. So long as there are enough good retro funders, things are still sort of okayish as most issuers and speculators will be more interested in catering to the good retro funders will all the capital. But if the bad retro funders become too many or have too much capital, it becomes tricky. The pot is set up such that the capital it has scales in proportion to the activity on the market, so that it’ll always have roughly the same relative influence on the market. Sadly, it’s not huge, but it’s the best I’ve come up with so far.
The other solution is targeted marketing – making it so that the nice and thoughtful retro funders become interested in the market and not the reckless ones.
Impact certificates are required to be very specific. (Something we want to socially enforce, e.g., by having auditors refuse vague ones and retro funders avoid them.) So say an issuer issues and impact certificate for “I will distribute 1000 copies of the attached Vegan Outreach leaflet at Barbican Station in London between April 1 and August 1, 2022. [Insert many more details.]” They go on to do exactly that and poll a few people about their behavior change. But in July, as they hand out the last few leaflets, they start to realize that leafletting is fairly ineffective. They are disappointed, and so blow up a slaughterhouse instead and are transparent about it. The retro funder will read about that and be like, sure, you blew up a slaughterhouse, but that’s not what this impact certificate is about. And if they issue a new impact certificate for the action, they have to consider all the risks of killing humans, killing nonhumans, going to prison, hurting the reputation of the movement, etc., which will make everyone hesitant to invest because of the low ex ante expected impact.
Just saw your edit: One impact certificate for a whole org is much too vague imo. Impact certificates should be really well defined, and the actions and strategy of an org can change, as in your example. Orgs should rather sell all their activities as individual impact certificates. I envision them like the products that a company sells. E.g., if Nokia produces toilet paper, then the rolls or batches of toilet paper are the impact certificates and Nokia is the org that sells them.
Orgs can then have their own classic securities whose price they can control through buy-backs from the profits of impact certificate sales. Or I also envision perpetual futures that track an index of the market cap of all impact certificates issued by the same org.
Impact certificates as small as rolls of toilet paper are probably a bit unwieldy, but AMF, for example, has individual net distributions that are planned thoroughly in advance, so that would be suitable. I’ll rather want to err on the side of requiring more verifiability and clarity than on the side of allowing everyone to create impact certificates for anything they do because with vague interventions it’ll over time become more and more difficult to disentangle whether impact has been (or should be considered to have been) double-sold.
Yep, also a big worry of mine. I had hoped to establish the pot better by making it mandatory to put a little fee into it and participate in the bet. But that would’ve just increased the incentives for people who don’t like the pot jury to build their own more laissez-faire platform without pot.
My fallback plan if I decide that impact markets are too dangerous is to stay in touch with all the people working on similar projects to warn them of the dangers too.
I agree that requiring certificates to specify very specific interventions seems to alleviate (3).