Author’s note: It’s been quite some time since my last post. In fact, it’s the last day of November and this will be my last post this month. It’s been a bit hectic getting settled in Ottawa, in addition to some other things that have been going on, but I do hope to get back into a regular habit of writing posts again.
I came across an article recently that espoused the value of the efficient-market hypothesis through the success of InTrade — when it was still functioning. In case you’re not familiar, InTrade is a betting site that would post contracts, for instance — “Mitt Romney will be the Republican Presidential nominee” — and then people could ‘buy’ that contract if they thought Romney would be the nominee or (sell) that contract if they thought he wouldn’t. There’d be all kinds of questions, not just political. There are questions about world events (the US will find Saddam Hussein) and questions about awards shows (Avatar will win Best Picture).
In the article, there was a small blurb about futarchy:
The potential of prediction markets to aggregate and reveal information is so great that some have surmised they might remake whole political systems. Robin Hanson, an economist at George Mason University, has endorsed what he calls “futarchy,” a form of government that would use prediction markets extensively as a policymaking tool. If the aggregated predictions of the market are better than the individual predictions of a few appointed experts, why not let citizens bet on, rather than submit to professional opinion on, for example, which tax policy is more likely to bring prosperity?
For the most part, there certainly seems to be something to the argument in favour of the wisdom of the crowds, but as I’ve written before, the wisdom of the crowds can’t always be trusted. When thinking about the wisdom of the crowds in the context of policymaking, I wonder about the crowd’s ability to divine the need for civil rights. That is, I wonder if, during the time leading up to the civil rights movement, the crowd would have accurately predicted it was beyond time to implement a new level of equality in the United States. Or, what about in the time of Lincoln? Would the wisdom of the crowds have decided that black people deserved freedom?