We often don't know how bad a decision by a major group like a country, company, city, or club is until after it has happened. Before such a decision was made, there were probably people who knew a lot about what it would mean and had good reasons not to agree with it. But these experts weren't enticed enough to share their knowledge with people who were making decisions for the right reasons, and non-experts weren't persuaded that these decisions are bad. Most importantly, people who make decisions are not held responsible if the decision doesn't turn out to have the effects they said it would.

Our information institutions, like public relations teams, organised interest groups, news media, conversation forums, think tanks, universities, journals, elite committees, or state agencies, don't do enough to get people to find and share relevant information. This is a big reason why bad decisions are made and put into place

Robin Hanson, the creator of Futarchy and the father of modern prediction markets who is now a professor of economics at George Mason University, says that we should think about adding speculative market institutions to our political information institutions. Since speculative markets are so good at getting people to get information, share it through trades, and combine it into consensus prices that convince a wider audience, they seem like the perfect places to get information.

Hanson came up with the idea of Futarchy because of how well speculative markets gather information. In Futarchy, only those policies become law that speculative markets have clearly estimated would make the country better off. Prices on speculative markets could be used to estimate a national welfare metric (like GDP) depending on whether a proposed policy is adopted or not. This could be done with "called-off" trades in assets that pay according to the measured national welfare. These trades are cancelled if the proposed policy is adopted (or not). Lastly, the policy would only be put into place if the market thinks it will make the country better off than it is now.

This also means that in Futarchy, the people who make decisions (the people who take part in the market) are held responsible if the predicted result (for example, the national welfare metric estimate) doesn't happen. They would lose their money. If you want to have an effect on a speculative market, you have to put your money where your mouth is. Futarchy is a way to make decisions that can be used in many different kinds of groups. The organisation would only have to come up with a metric that could be checked by the public, and then their decisions would be based on the results of two prediction markets on that metric.

Vitalik Buterin wrote in a blog post in 2014 that the first market would be based on a currency that pays $1 if a company makes decision A and $0 if it makes a different choice. The second market would use a currency that pays $1 if a company makes decision B and $0 if it makes decision A. So, the first market is only worth something if its condition is met, that is, if decision A is made. In the same way, the second market is only worth something if choice B is made. If Futarchy was in place, only the choice for which the market thought it would pay the most would be made.

If decisions are made based on the results of prediction markets, we need to be sure that our markets can't be swayed by attempts to change the way people participate. Speculative markets have shown that they are very hard to manipulate. This is because of how they deal with "noise trading," which is trading for reasons other than finding out how much an asset is worth. Manipulators who trade in order to change prices are called "noise traders" because they don't trade to find out the value of an asset.

Hanson says that when traders can't predict noise trading exactly, they make up for its expected average with an opposite average trade. They then make up for its expected variation by trading more and trying harder to find the right information. In fact, Theory says that since traders aren't too afraid of risk and putting in more effort leads to more information, more noise trading makes prices more accurate.

This subject intrigues me for a reason, and I am attempting to learn more about it. If I proceed, I will discuss Conditional Tokens in the next essay.

• Vitalik Buterin: Empirical Cryptoeconomics

• Ethereum Foundation: An Introduction to Futarchy

• Futarchy: Vote Values, But Bet Beliefs by Robin Hanson

We often don't know how bad a decision by a major group like a country, company, city, or club is until after it has happened. Before such a decision was made, there were probably people who knew a lot about what it would mean and had good reasons not to agree with it. But these experts weren't enticed enough to share their knowledge with people who were making decisions for the right reasons, and non-experts weren't persuaded that these decisions are bad. Most importantly, people who make decisions are not held responsible if the decision doesn't turn out to have the effects they said it would.

Our information institutions, like public relations teams, organised interest groups, news media, conversation forums, think tanks, universities, journals, elite committees, or state agencies, don't do enough to get people to find and share relevant information. This is a big reason why bad decisions are made and put into place

Robin Hanson, the creator of Futarchy and the father of modern prediction markets who is now a professor of economics at George Mason University, says that we should think about adding speculative market institutions to our political information institutions. Since speculative markets are so good at getting people to get information, share it through trades, and combine it into consensus prices that convince a wider audience, they seem like the perfect places to get information.

Hanson came up with the idea of Futarchy because of how well speculative markets gather information. In Futarchy, only those policies become law that speculative markets have clearly estimated would make the country better off. Prices on speculative markets could be used to estimate a national welfare metric (like GDP) depending on whether a proposed policy is adopted or not. This could be done with "called-off" trades in assets that pay according to the measured national welfare. These trades are cancelled if the proposed policy is adopted (or not). Lastly, the policy would only be put into place if the market thinks it will make the country better off than it is now.

This also means that in Futarchy, the people who make decisions (the people who take part in the market) are held responsible if the predicted result (for example, the national welfare metric estimate) doesn't happen. They would lose their money. If you want to have an effect on a speculative market, you have to put your money where your mouth is. Futarchy is a way to make decisions that can be used in many different kinds of groups. The organisation would only have to come up with a metric that could be checked by the public, and then their decisions would be based on the results of two prediction markets on that metric.

Vitalik Buterin wrote in a blog post in 2014 that the first market would be based on a currency that pays $1 if a company makes decision A and $0 if it makes a different choice. The second market would use a currency that pays $1 if a company makes decision B and $0 if it makes decision A. So, the first market is only worth something if its condition is met, that is, if decision A is made. In the same way, the second market is only worth something if choice B is made. If Futarchy was in place, only the choice for which the market thought it would pay the most would be made.

If decisions are made based on the results of prediction markets, we need to be sure that our markets can't be swayed by attempts to change the way people participate. Speculative markets have shown that they are very hard to manipulate. This is because of how they deal with "noise trading," which is trading for reasons other than finding out how much an asset is worth. Manipulators who trade in order to change prices are called "noise traders" because they don't trade to find out the value of an asset.

Hanson says that when traders can't predict noise trading exactly, they make up for its expected average with an opposite average trade. They then make up for its expected variation by trading more and trying harder to find the right information. In fact, Theory says that since traders aren't too afraid of risk and putting in more effort leads to more information, more noise trading makes prices more accurate.

This subject intrigues me for a reason, and I am attempting to learn more about it. If I proceed, I will discuss Conditional Tokens in the next essay.

• Vitalik Buterin: Empirical Cryptoeconomics

• Ethereum Foundation: An Introduction to Futarchy

• Futarchy: Vote Values, But Bet Beliefs by Robin Hanson