Space & Astronomy/Space and Astronomy (October 1993).iso/pc/text/spacedig/v15_2/v15no233.txt

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Date: Tue, 22 Sep 92 05:13:27
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Space Digest                Tue, 22 Sep 92       Volume 15 : Issue 233

Today's Topics:
        Space Platforms (political, not physical : -) [Part 2]

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Date: 21 Sep 92 20:04:04 GMT
From: Thant Tessman <[e-mail]>
Subject: Space Platforms (political, not physical : -) [Part 2]
Newsgroups: sci.space,talk.politics.space,alt.politics.marrou,alt.politics.libertarian

IS THERE ENOUGH INTEREST IN SCIENCE QUESTIONS?  A recent science fiction
[Bre] novel imagined wide-spread betting on science and technology
questions, supplanting horse racing in popularity.  And it is possible
that having a direct, if small, influence and personal stake in science
would heighten the public's interest.  At present, though, fewer people
probably follow science than football.

We don't need to interest everyone, however, just enough to pay for the
modest overheads involved.  Few people have interest and opinions about
the future price of corn, yet corn futures markets thrive.  A great many
people are now involved in scientific research, many more follow
scientific journals, and even more follow science in the popular media.
Many of these people have strong opinions on various science
controversies and feel they have insufficient opportunity to express
them.  Idea futures would thrive if it tapped only a small fraction of
current interest and effort.

Having a fraction of science funding channeled through betting markets
would certainly accomplish this.  So might basic attitude changes toward
seeing markets as a legitimate place to "take a stand" on important
issues, trading scores as indicators of who is right more often, and the
market price as a valid consensus measure.  Idea futures does not need
large sums of money to be successful; even when there is only $100 bet
on a question, the market still offers the social benefit of a visible
consensus and incentives for honesty.

WILL THESE MARKETS BE TOO THIN?  In a market with low "liquidity", there
are so few traders that you have to wait a while to find someone willing
to trade with you.  Automated market-makers [Hak], always ready to trade
at prices determined by their current inventory, can increase liquidity
and maintain a small "spread" between their buy and sell price offers.
And they can be very cheap if the basic transaction costs are low, which
they could be if thousands of markets shared the same computerized
market place.

But the market might remain "thin" in the sense that prices could change
quickly against a trader in response to each small amount traded, so
they would have to wait to get a "reasonable" price.  A lack of expected
market thickness can be a self-fulfilling prophecy, since traders prefer
thick markets [Ec].  This is a standard explanation for the limited
number of futures and options markets currently available.

Funding channeled through market-makers would of course thicken the
markets, as would consistency arbitrage and conditional offers that
connect questions.  And improving computer technology, with lower
transaction costs and automated trading strategies, should make thinner
markets more tolerable.  Besides, two people making a bet is a very thin
market, but it happens all the time.  And just one person posting an
offer to bet on a new subject could be an important contribution to our
social consensus.

Thin markets are known for being good places to find overlooked
bargains, and are less prone to speculative bubbles (a single rational
person can squash one).  A thin idea futures market may actually seem
better to some people, as the cost to change the current market
consensus would be less.  But thicker markets are better in general.

DOESN'T BETTING ONLY WORK FOR CLEAR CUT QUESTIONS LIKE HORSE RACES?
Most organized betting focuses on questions which, like sporting events,
will become very clearly resolved in a fixed time.  This minimizes
disputed verdicts and judging costs, and it makes sense for risk and
entertainment-seeking bettors to focus on such subjects.  But this does
not imply that, given a specific subject area, betting markets are not a
reasonable alternative to other consensus, reputation, and incentive
mechanisms.  Any incentive mechanism must pick some arbiter of quality,
and subjects that are difficult for bets are also difficult for other
approaches.  For example, peer review, which uses averages of anonymous
expert reviews as a quality measure, is widely believed to work better
in the "hard sciences" than elsewhere.

Eventually most scientific controversies seem to get resolved enough to
settle a bet.  This resolvability is in fact central to popular notions
of what defines science.  Scientific claims are often defined as claims
of "fact" which future evidence could possibly disprove [Pop], or at
least alter our degree of confidence in.  And science is widely believed
to be "progressive", so that as evidence accumulates and relevant
studies continue, opinions gradually converge.  Beautiful theories
killed by ugly facts are left behind.  Or as Bacon said, "Truth is the
daughter, not of authority, but of time".

Actually, most people believe that opinions on most questions of fact
usually convergence with time, evidence, and sincere study.  We hope
that history will prove us right.  We debate and discuss, essentially
saying "I'll bet if we talked it out, you'd see I'm right".  We take the
advice of experts, indicating that we think we would come to believe
what the experts believe, if only we were to study what the experts have
studied.

Even if we aren't sure whether opinions will converge, we think there is
a good chance they would converge if only a knowledgeable and detached
enough group would spend enough effort to study and debate the question.
And if that group is diverse and independent enough, we believe we would
probably agree with them.  If so, we should accept their verdict to
settle a bet.

HOW OFTEN DO BELIEFS REALLY CONVERGE?  Just because people believe their
opinions converge, doesn't mean that they do. After all, there are
strong social reasons to want to believe in convergence.  Even if most
questions that are settled today were once controversial, this doesn't
mean that most old controversies are now settled.  Perhaps yesterday's
questions referred to concepts that are not even considered to make
sense today. Historical studies, examining random scientific questions
and claims of several centuries ago, should be done to shed light on
these doubts.

But there are reasons to be optimistic.  Standard decision theory,
though it does not adequately account for the computational costs of
deducing the implications of theories and evidence, is instructive and
indicates that rational agents should come to agree [Se].  Consider an
ideal decision theory agent who has a degree of belief in some
particular claim A and continues to observe new evidence.
Asymptotically, either all new evidence will be irrelevant and have no
bearing on A, or the agent will become certain about whether A is true
or false.  Now imagine that the claim A specifies a detailed possible
world, i.e. says that the real world is one particular world out of the
many possible worlds.  If two ideal agents start out with wildly
different beliefs, but neither of them is completely certain about A,
and if they both observe the same not asymptotically-irrelevant
evidence, then they will asymptotically come to agree about A.

Studies indicate that people also have strong tendencies to conform and
agree when exposed to each others opinions [Li] and arguments [My]. In
fact, the rate at which they come to agree often seems faster that can
be rationally justified by decision theory.   Randomly selected legal
juries usually come to a unanimous verdict on complex legal questions.

WHAT IF BELIEFS NEVER CONVERGE?  Even if beliefs usually converged, idea
futures might be unworkable if it dealt badly enough with situations
where beliefs don't converge.  One approach is to have mutually
exclusive claim sets include a "this question too vague to judge" claim
which the judges could choose if it seemed clear that no amount of study
or time would ever allow a choice between the rest.  Most people could
then bet on the question conditional on it being resolved.  This
solution fails, however, if sincere beliefs never converge and yet it
never becomes clear whether or not beliefs will converge.  A deadline by
which a question must be resolved could deal with this, but has other
disadvantages.

If investors can reasonably estimate the chances that a question will be
unresolvable in this manner, then the problem is manageable.  High-risk
questions will only be traded if there is enough disagreement [Jaf] or
subsidies to justify it, and for low-risk questions the problem can be
ignored.  And, it seems, resolvability can be estimated.  Questions
about religion and morals are more difficult, as are certain
long-standing riddles like the nature of consciousness.  On the other
hand, a question about a physical property of a substance, like a bond
angle in some new molecule, seems quite resolvable.  As a rule, one
should prefer questions closer to direct observations.  And general
claims for which relevant evidence will always be available should do
better than claims like what someone had for breakfast ten years ago.

WHAT DO CONVERGENT BELIEFS HAVE TO DO WITH TRUTH?  The philosopher
Peirce claimed that "The opinion which is fated to be ultimately agreed
to by all who investigate, is what we mean by the truth" [Th].  However,
the question of whether the convergent opinion we might all come to with
unlimited evidence, study, and debate is the way the world "really" is,
is beyond the scope of the paper.  Even if it isn't "truth", we are all
interested in it, and it's hard to think of a better truth-estimate on
which to base academic incentives.

WHAT ABOUT BADLY WORDED CLAIMS?  Even if an issue becomes settled, a
poorly worded claim on that issue may be unresolvable.  To avoid this,
we need techniques for avoiding ambiguity and incentives for players to
use them.

Wording a claim so it is both relevant to some important issue and
minimally ambiguous is a skill that is routinely learned in many
professions.  Lawyers and philosophers obtain clarity through
standardized words and language, and experimental scientists are adept
at finding connections between abstract theories and specific
observations.  Claims should avoid slippery concepts and phrasing which
allows many interpretations.  Verbose annotations can also help by
discussing motivations, examples, intended word meanings, judging
criteria, etc.

If copyright laws are interpreted as applying to claim wordings, then
claim authors may be able to charge an extra royalty fee for each join.
Claim authors would then compete with each other for royalties from
investors, who would prefer authors with reputations for writing clear
and interesting claims. Added incentives come if authors bet against
their claim being judged too vague.

To avoid excessive costs in forming a claim, a question could hold a
"clarification lottery".  After a certain time, or when the market
capital reached a certain amount, judges could be funded in the usual
manner to replace a hastily worded claim with a more considered one.

Even when one cannot really word a good claim to bet on directly,
markets offer other ways to bet on a subject.  For example, if one
believed that when physicists disagree with chemists, the chemists are
usually right, one could invest in a "basket" or mutual fund which bets
on the side of chemists in as many controversies as possible.

CAN'T WRONG IDEAS STILL BE USEFUL?  Absolutely.  If you think an idea is
probably wrong, but is probably more like the right answer than anything
else around, then bet on that.  If you just think that work on the idea
is likely to inspire something interesting, then bet on that.  These
questions will be harder to judge though.

WHAT IF THE FINE PRINT DIFFERS FROM THE SUMMARY?  Verbose claims would
probably be described by short summary sentences or phrases in price
lists, offers, etc.  As with contracts and political ballot initiatives,
there are problems when a deceptive title differs from the fine print.
In extreme cases people might sue for misrepresentation, but usually we
can only encourage the buyer to beware.

WHAT ABOUT SUCKER BETS?  If a stranger offers to bet you on an oddball
subject, there is a good chance they are trying to trick you with a
deceptive claim.  Even if it looks like you couldn't lose, you are
well-advised to decline; the fact that they are making an offer gives
you information.

In markets on pre-existing controversies where many traders have already
examined the claims, this is less likely, though still possible.  In
general, traders should look claims over carefully and not bet unless
they honestly think they know better than than the other traders.

DON'T SCIENCE QUESTIONS RESOLVE TOO SLOWLY?  The fundamental questions
that get people interested in science, such as whether the universe is
infinite, can take decades or even centuries to resolve.  But this does
not prevent markets in such questions. Most any newspaper will show that
people regularly buy bonds scheduled to mature in forty years.  Fifty
year-olds who buy such bonds are not counting on living to be ninety;
they know they can sell the bonds in the market at any time.

At present, you usually can't get a Ph.D. on whether the universe is
infinite; you focus instead on a smaller question that is hopefully
relevant for the bigger ones.  Idea futures investors will similarly
prefer shorter-term questions.  A question that takes ten years to
resolve (say starting at 50/50 and ending more than 90% certain 90% of
the time) should have the same sort of daily price fluctuations (around
1.5%) as stocks do, and so support a similar mix of short-term
speculators, and long-term fundamentals-oriented investors.

But for longer-term questions, investing in fundamentals is less
attractive.  Less information comes out per unit time in a long-term
market, so there is less money to be made for a given market thickness.
And if you must hold out for decades until other investors come to their
senses, the extra rate of return above the market average that you get
for your information may be very small, and so you may prefer to quit
now if you have better opportunities elsewhere.  To make things worse,
this creates an opportunity for strategic behavior.  Someone might move
the price in some direction and try to hold it there in the hope that
other traders will not be willing to hold out as long and therefore quit
at a loss.

Finally, you may not trust the underlying financial institutions to
remain stable over a century or more.  Few people would probably bet
that "Nuclear war will destroy most of civilization", even though many
people would like to for insurance reasons.  And even if the banks don't
go bankrupt, uncertainties about the relative long-term value of
different base assets the betting stakes could be invested in may
completely swamp any added return from winning a bet.  This problem
could be minimized if the "market asset" [ShW], a maximally diversified
world mutual fund, became the standard base asset.

Even with all these problems, there will probably be rather thick and
well subsidized markets on a few very basic science questions, as
funding agencies and amateurs seeking to influence important issues
would focus on them.  Such questions could be connected, through a
network of conditional offers, to related shorter-term questions which
research could more directly resolve, allowing researchers of simpler
questions to obtain some of the subsidies on the basic questions.

In financial markets, the conventional wisdom is that longer-term price
movements are less rational, as there is less incentive to correct
irrational deviations.  But there is still some incentive, and so idea
futures may still offer an improvement over the existing situation.

WHY SHOULD I TRUST THE JUDGES?  Even when sincere opinions would
converge, investors may worry about judges being biased by bribes or
various shared interests and associations.  Fortunately, investors get
to pick the assets they buy, and therefore the judges they bet on.  So
they can prefer long-lived judging organizations with reputations for
fairness and avoiding scandals, and which use various available means to
discourage foul play.

Incentives for traders to settle out of court and avoid judging
altogether certainly help avoid judging foul play.  So do clear-cut
claims and judging criteria that leave little room for judging
discretion.  If we wait so long that the right verdict becomes "obvious"
it would also be hard for judges to cheat.  Also more trustworthy are
juries of people who have never had a stake in the question, randomly
selected from a large population, deliberating openly and offering to
consider any relevant evidence.

The question of whether some proposed evidence is relevant for some
deliberation could even have its own betting market; juries could offer
to consider any evidence for which the market odds of relevance were
above some threshold.

Incentives to detect foul play could come from both the ability to sue
cheating judges, and possibly from large bonds which judges might post
payable to anyone who uncovers such corruption.  Also, any persistent
difference in the market odds on the same claim with different judges
would constitute consensus about judging bias, flagging those judges for
closer scrutiny.  Judge rating agencies might form.  Finally, "appeals"
markets can give judges a direct incentive to be careful and honest,
since judges must then bet that their verdict will be upheld on appeal.

WON'T JUDGING COST TOO MUCH?  Through audit lotteries, one can keep the
percentage taken by judges below any given threshold, and still afford
to pay for very detailed judging, even going so far as to choose many
jurors from widely different cultures and train them in one or more
specialties before having them adjudicate some specific issue!  This
approach is mainly limited by risk aversion, which limits the
attractiveness of large wins.  Most people will not want to bet so much
on any one question that the amount they might win would be much more
than their total wealth.  A one in a billion chance of winning a billion
dollars is not worth as much to most people as a one in a thousand
chance of winning a thousand dollars.  If the amount one would need to
bet to avoid this effect is too small, it is not worth the bother and
people will bet nothing on the question.

WON'T WEALTHY PEOPLE HAVE TOO MUCH INFLUENCE?  Markets are not opinion
polls where the rich get more votes; to use market influence one must
risk losing it.  As in existing financial markets, rich investors who
are not specialists in some particular area will prefer to get
investment advice from someone who is a specialist, or avoid investing
in that area entirely. This is similar to the way that powerful people
defer to academic specialists now.  Rich people who carelessly throw
their weight around will lose their riches.

Even so, the wealthier social classes will have more influence, as they
do now in most areas of life, including academia.  If this is a problem
which you are willing to invoke the force of government to solve (I am
reluctant to do so), then the natural solution is general wealth
redistribution.  This is much more cost-effective than crudely trying to
keep the rich out of any particular walk of life.

If you worry that markets would create large inequalities in academia,
don't.  Influence in academia, as measured for example by number of
papers published [Pr], is far more concentrated than in most walks of
life.  It seems unlikely that markets would make things worse, and could
well make things much better, as people would not need degrees or the
blessing of the academic elites to play as equals.

WON'T THE MARKET BE DOMINATED BY FOOLS?  Again, markets are not opinion
polls.  Anyone can invest in any open market, but they only choose to
invest where they think they have special insight or insurance needs.
Even if they are mistaken about their special insights into, say, the
gold market, they are fairly quickly taught otherwise.  Most people who
play commodity markets, for example, lose their stake and quit within a
year.  Such markets are dominated by the minority who have managed to
play and not go broke.  If you believe otherwise, and know of some
market where the prices are obviously wrong, I challenge you to "put
your money where your mouth is" and take some of that free money you
believe is there for the taking.  It's easy to bad-mouth the stupid
public before you have tried to beat them.

WON'T ADVERTISING MANIPULATE OPINION?  Advertising, in the sense of
campaigns to persuade through evidence and arguments, exists now in
academia and would certainly persist.  Advertising, in the sense of
clever jingles and sex appeal to grab the subconscious of the impulse
buyer, should not be a problem.  People do not try to affect the price
of corn futures with clever jingles; it would be like trying to sell
cars by offering free balloons to Consumer Reports technicians.  The
savvy investors who dominate markets are smarter than that.

AREN'T MARKETS FULL OF CHEATS AND THIEVES?  Yes, but this does not
usually distort the incentives or the consensus price much.  Most
cheating is not "manipulating the price", which is rather hard to do in
a liquid market, but conflicts of interest where people who supposedly
represent others instead act in their own interest, giving poor advice
to clients and using information gained from clients.

Insider trading is mentioned below.  But brokers and investment advisors
are the worst case.  In markets you win whenever you can get others to
do what you just did, or when you predict what they will do and do it
first.  Brokers and investment advisors often tell you to buy whatever
they would like to sell, and charge you large commissions for the
"advice".  Brokers often trade for themselves just before they execute
trades for you; stop orders and margin calls are especially lucrative.

To avoid being cheated, be careful who you trust.  Avoid brokers who
trade for themselves, and advisors who do not take the same risk they
advise for you.

As bets, idea futures markets cannot be cornered or monopolized.  No
matter how many bets have been made, other people are always free to bet
more.

WHAT ABOUT INSIDER TRADING?  When an employee of a company makes money
by trading on inside information they have about that company, or by
telling someone else so they can trade, that employee is considered to
be going against the interest of the other stockholders who own the
company.  Employment contracts and laws can forbid this conflict of
interest, though price movements just before major announcements show
that a substantial amount of such trading happens anyway.

Fortunately nature has no insiders or employees.  The only similar
problem in idea futures is when a research lab is trying to keep a
result temporarily secret before trading on it, and an employee sneaks
out and trades first.  This could be dealt with exactly as stock insider
trading is now, through private trading records accessible to criminal
investigators.

WHAT ABOUT "MORAL HAZARD"?  One of the advantages of a market is that it
offers incentives to anyone to come and contribute their knowledge about
the world.  A disadvantage is that, since changing the world can give
one special knowledge about it, people may have an incentive to cause
harm.  If we allow anyone to bet on your lifespan, then someone may
decide to kill you just to win a bet.  And this murder may be much
harder to solve than most since, with anonymous trading, most anyone
might be a potential suspect.  (Though criminal investigators may be
able to learn who really made what "anonymous" trades.)  For this
reason, there are usually restrictions on who may buy how much life
insurance on you.

Moral hazard should be less of a problem for basic questions about
nature that people cannot change, though it could conceivably be a
problem for short-term trading and options that bet on when information
will come out.  We wouldn't want someone to blow up the latest
accelerator to prevent results from coming out, or to kill some patients
to slant a medical study.

Yet we shouldn't prevent open markets if the chance of foul play seems
small.  Anyone is allowed to trade stock, even though there is a
possibility that someone will sell short the stock of the makers of a
pain reliever, and then poison some packages to depress their sales.
Only for the rare claim where the risk of harm seemed particularly high
might one justify a prior restraint limiting who could have how much
stake on the different sides of a question.

WHAT ABOUT INCENTIVES TO START FALSE RUMORS?  A "rumor" is just
information, perhaps false, passed informally through a social network.
Maliciously false rumors occur whenever people both have an interest in
what other socially connected people think about a question, and when
there is inadequate feedback for learning what rumors were false, so
that people can discount unreliable sources.

In current academia, there is often enough feedback to discourage false
rumors about what results are about to be published.  Word of mouth
which discredits a junior researcher, however, can trash his or her
reputation without others ever really finding out if the rumors were
right.

Markets both encourage and discourage false rumors.  Markets give more
people an interest in fooling other people, but also improve the
feedback about what rumors were right.  And the market price offers an
alternative to informal information channels.  Again, don't believe
everything you hear; trust advisors with a good track record who take
the same risk they advise you to.

WHAT ABOUT INCENTIVES TO KEEP INFORMATION SECRET?  If you acquired a
piece of information where it was clear which side of what questions the
information favored, then your best strategy would be to buy on those
favored sides, reveal and publicize your information (perhaps after
selling it to other traders), wait for the price to rise, and then sell
at a profit.  If, however, the implications of the information are not
clear, you might be tempted to sit tight and wait for further
revelations, even though you risk other people stumbling on to your
insight in the meantime.  It is similar with incentives to publish.
Unless you can connect your insight to currently popular issues, and
package enough of them together to make a paper, you cannot get
published and so you may keep the idea to yourself.

One approach might be to formulate a question more closely related to
your information, and then try to convince some funding agency that your
question is interesting, even if its implications are not clear.  Or you
could subsidize your question, in the hope that this would encourage
others to figure out its implications and create conditional offers
connecting it to other questions.  Either approach might induce enough
market thickness to make your information pay off.

WON'T AN APPARENT CONSENSUS CREATE A CROWD MENTALITY?  People might
think they agreed more than they actually did, defer to a consensus that
had little thought behind it, and so create the social analogues of
anchoring and overconfidence [Kah].  Would creativity be suppressed?

Markets with less thought behind them should give themselves away by
being thinner.  If not, and some of us catch wind of this trend, we
could make money by correcting for it.  And, for what it's worth, the
market odds at horse races actually tend to be underconfident, being
biased toward long-shots.  Markets encourage people to be contrarian;
the only reason to trade, to not own the same mix of investments as
everyone else, is because you think the consensus is wrong, or for
insurance needs.

WILL THE NEW INCENTIVES SLOW OR STOP CONVERGENCE?  This is the opposite
of the above problem.  People with a stake on a certain side may become
mentally biased toward that side, resisting the rational implications of
mounting evidence.  This is of course not a new phenomenon in academia,
and so it's hard to see why the problem would be worse.  Except for
issues closely connected to basic "ideologies" about which most everyone
has an opinion, we can hope to find impartial jurors not overwhelmingly
biased by either side.

WON'T DIFFERENT CLAIM WORDINGS, JUDGES, AND BASE ASSETS CONFUSE THE
CONSENSUS?  Unless the performance of a base asset correlates with a
claim, the claim's market odds should be independent of base, and
arbitrageurs can easily enforce this.  If the prices on the same claim
judged by different judges were persistently different, this would
constitute consensus about judging bias, a situation that judges would
want to avoid.  If different claim wordings on an issue have very
different prices, this represents consensus that there are really
several different issues to be distinguished.  For each distinguishable
issue, traders seeking liquidity will probably congregate around one or
a handful of base asset/wording/judge combinations, thereby avoiding a
combinatorial explosion.

WON'T THE CONSENSUS REFLECT RISK PREFERENCES AS WELL AS BELIEFS?  Yes,
the amount one should bet depends on one's beliefs, attitude toward
risk, and the stake one already has in a question [Kad].  Risk-avoiders
bet less than risk-takers, and bet less on the side that they already
have a stake in.  Price distortions from this should be minor, unless
most everyone has substantial non-betting stakes on the same side, or if
beliefs correlate significantly with such stakes, and if the stakes held
approach each person's total wealth.  One exception is that few people
would bet for "Technology will soon make us all too rich to care about
money", even if they believed it.

It might seem that questions with extremely lop-sided odds would also be
a problem.  Too few people might bet that "energy is conserved" (EC) if
they very confidently expecting to win very little.  But by splitting EC
assets along other questions, people could jointly support EC, debate
other questions, and get a higher average return.  In general, traders
should keep splitting until liquidity or risk considerations dominate.

Some people have worried that opinionated yet extremely risk averse
people, unwilling to bet on anything, would be unfairly labeled
"insincere" debaters.  But it is hard for me to imagine that they could
not afford to risk even $10 a year so that we could develop a reputation
score for them.  If it is the risk of a low reputation score that scares
them, perhaps they should not act so opinionated.

WON'T BETTING CHALLENGES DISCOURAGE CREATIVITY?  If people were expected
to bet on every idea that comes out of their mouth, they would be more
reluctant to think up wild ideas, most of which are going to be bad.
Hopefully we can maintain a distinction between saying "Here is an
interesting idea to think about" and "This is the way it is, why won't
you agree?", only expecting people to put up or shut up in the second
case.

WHAT'S THE POINT OF A "CONSENSUS" THAT PEOPLE DISAGREE WITH?  Regardless
of the name used, people often want to pool their differing individual
estimates on some issue into a composite estimate.  This is most clearly
needed in the "public choice" problem, where citizen estimates must be
combined into government policy.  But we also have a more general need
for social institutions where experts combine their estimates on some
subject into composite estimates, estimates that non-experts can use to
make individual choices.  Several such institutions may compete for
attention, but the need remains.

Most work on consensus measures [Gen,Gr,Syn] focuses on various explicit
functions for combining individual beliefs, and some simple variations
of these [Man] are now used as academic consensus mechanisms.  Compared
to these, betting markets not only offer superior incentives [Ei] for
people to bother to make their beliefs explicit and honest, but betting
markets have the following unique claim to the word "consensus".

It is in the personal interest of an ideal decision theory agent to make
all external actions as if they agreed with the market consensus
[Kad,Na], without any coercion.  Agents should buy contingent assets up
to the point where their marginal rates of substitution are the same,
i.e. where they all agree on the relative value of getting one more
dollar for sure vs. even more dollars in some contingency.  An external
observer, who can offer agents trades or choices but cannot tell how
much each agent has already bet, cannot tell that the agents internally
disagree.

Insurance-based proposals [Fa] are similar in spirit to the betting
markets proposed here, as is the following proposal for dealing with the
public choice problem [Mu].  If a government threatens to make a change,
sells insurance on the change either way, and then makes the choice that
is cheapest for them, they produce an efficient "Pareto optimal" result.

ISN'T IT BETTER FOR PEOPLE TO ARGUE OUT THEIR OWN DISPUTES?  Yes, which
is why we want incentives, such as audit lotteries, for parties to
settle out of court and avoid judging.  Idea futures is only intended to
discourage insincere debaters.

Another way to avoid judging is to hold "argue lotteries" which are like
audit lotteries except that judges are not invoked.  The idea is to
focus attention on a smaller number of markets where more is at stake.
This should induce more discussion and examination of such questions,
perhaps resulting in more related questions being formed.  Hopefully,
opinions would naturally converge, and people would leave the market.
Judges are really only there to discourage self-deception and strategic
bargaining, so that the market odds eventually reflect the "obvious".

WON'T THIS HAVE THE SAME PROBLEMS AS PATENTS?  No [Hir].  With patents
we must decide who owns an idea, and so a centralized legal system must
make a great many subtle decisions with insufficient evidence and
expertise.  We must examine history to decide who contributed how much
to the idea.  We must define some sharp legal boundaries that determine
what it is to use the idea.  With present patent law, we must also
decide if an idea is true, if it is "original", if it is "obvious", if
it is a "process", if it was revealed properly, etc.  Bets are much more
flexible; we need only decide if an idea is right, and we can each
choose who is to judge that question.  Government intervention and
international agreement are not needed.

WOULDN'T ANONYMOUS TRADING SCREW UP REPUTATION STATISTICS?  Perhaps
people could make private trades to move prices out of line, and then
make public trades on the other side to bring them back, so that those
trades do better than average.  This is somewhat like giving someone a
wad of money by dropping it in the park and having them wander by an
hour later to pick it up.  If the park is crowded enough, someone else
will have found it by then.  In the market, anyone else could make money
by stopping the price from moving out of line.  The problem is more
serious, however, if everyone accepts that only one trader has any
information about a question, and so no one else wants to bet there. If
identifiable, such markets should be excluded from reputation scores.

IF THIS IS SO GREAT, WHY HASN'T IT HAPPENED ALREADY?  If it was in
people's interest, wouldn't there be such markets by now?  Well, if we
always assumed this we might never do anything new, but it's important
to ask this question.  The fact that science bets have been legal only
in Britain, and then only in the last three decades is only part of an
explanation.

English bookmakers perceive little demand for science bets, and so take
them mainly to induce popular articles mentioning the going odds on
unusual subjects [ShG].  This publicity brings in new clients, who may
then be switched to the "real" betting on sports. Because of this,
bookies prefer small bets on subjects "in good taste" that anyone can
understand, like UFOs, Yetis, and Moon landings.  They avoid subjects
that seem too esoteric for the general public, like the recent "cold
fusion" claims, and subjects that won't very clearly resolve themselves,
as a judging industry has not yet evolved.

Bookmakers traditionally prefer to set prices and stick to them, rather
than setting up markets in order to play market-maker with the
fluctuating prices.  Because of this, they are usually unwilling to
offer bets on claims where they do not know how to estimate the odds,
and few bookies have advanced science educations.  As a result, they
mainly take safe bets, siding with the scientific establishment against
"crazy" outside theories, which doesn't help the image problem betting
has in many quarters.

English bookmakers do not seem to have seriously tried to sell
imagine-conscious academics on science bets, through arguments like
those in this paper.  Nor, to my knowledge, has the possibility for
betting markets as a funding mechanism been pointed out.  Questions of
interest to academics are now avoided and no visible influenceable
consensus is formed; one cannot even subscribe to a publication listing
the going prices on science questions.  It should be possible to improve
on this.

CAN NATIONS FUNDING RESEARCH THIS WAY APPROPRIATE THE BENEFITS?  A
popular argument for government-funded research says that, left to
themselves, people won't produce enough basic knowledge [Pa].  If a
knowledge producer publishes its results, then "free riders" can use
this knowledge without paying the producer.  Patents on basic knowledge
are considered too fuzzy to enforce, and trade secrets are said to fail
because of difficulties keeping basic information secret, and in
figuring out who would find basic knowledge useful.

Of course if nations do subsidize research, they can fall victim to
international free riders, i.e., countries that mainly apply research
done elsewhere.   Some discount this by saying that most research
knowledge is never published, but tacit and embodied in the skills of
the researchers.  Thus subsidies largely benefit researchers and
companies located near enough to easily collaborate with and hire such
researchers.  Of course such a locality of benefits would suggest that
research is best funded at a local level, or even privately within a
large university campus.

A need for local appropriation of benefit argues against indirect
funding methods, like prizes or idea futures, which cannot as easily
control where the research they induce is performed.  But such
mechanisms might be well suited for science-for-its-own-sake
philanthropy and for international funding of research, as such indirect
methods can better avoid favoritism toward any particular nation.

SHOULDN'T WE APPEAL TO HIGHER MOTIVES THAN GREED?  The very formulation
of the patron's problem, how to best promote scientific progress given a
fixed pile of money, forces one to deal with money.  Money is what the
patron has to offer.  So the patron can only influence people that care
to some degree about money, or that care about something else controlled
by people who care about money.

STRATEGY

It's a lot easier to sketch a grand utopian vision than it is to figure
out how to get there from here.  An ideal development strategy would
show how to grow incrementally, with each self-supporting step leading
naturally to the next one.  Most utopian visions fail because they,
instead, require too many things to change all at once.

One advantage of idea futures is that, if not legally prohibited or
socially shunned, it can co-exist with existing academic institutions
and incrementally attract investors, patrons, and controversies.  Papers
would still be published and elite committees would still convene.
Professors would gradually make more side bets, and begin to challenge
each other to bets.  Journalists would gradually rely more on the market
odds for news stories, and funding agencies would gradually try larger
levels of subsidies.  Idea futures could rise or fall on its own merits,
as people studied how well its predictions compared to other consensus
measures, and how the rate of progress in a field depends on the
fraction of funding channeled through the markets.

Unfortunately, there seem to be some obstacles to overcome before
gradual growth is possible.  Economies of scale in forming reputable
judging organizations or building secure computerized marketplaces may
mean that certain levels of participation may be required before idea
futures can "take off".  But the major hurdle seems to be attitudes
toward the very idea, attitudes reflected in the world-wide legal
prohibitions.  There are several possible strategies here.

One approach is more discussions, like those in this paper, of the need
for alternative academic institutions, and of betting markets as a
particular alternative.  Perhaps we need simple word tricks, like
insurance and stock bets have used, to disassociate idea futures from
ordinary betting, though the concept of bets is very useful in
explaining how it works.

Also helpful is further research on markets in conditional assets, such
as recent attempts to show them superior to opinion polls at predicting
elections [Fo].  Laboratory experiments [SmV] comparing betting markets
to some mockup of existing peer review institutions would be very
interesting, though not of course decisive.

A different approach, which I am also pursuing, would be to create an
electronic mail-based reputation game, where people play for "bragging
rights" instead of money.  This would avoid legal problems and the
discomfort academics have in dealing explicitly with money, and would
allow many people from around the world to participate in a
less-threatening partial test of markets as an academic consensus
mechanism.  However, avoiding money makes the incentives suspect, and
precludes many of the advantages, like insurance, that idea futures
offer.  In particular, it makes it hard to pay judges enough to do a
careful job.  If enough people played, the scores would mean something
to observers, and so people might have an incentive to play and play
well.  But building a game up to this status would be hard, probably
requiring some "big name" players to attract others.

If the basic idea became plausible enough to enough private patrons in
Britain (because that's where it's legal) or government patrons
anywhere, idea futures could be seriously tried.  The initial field
would preferably be one where bets are easier to settle, like number
theory, though such subjects tend to be ones where existing institutions
also work better, and so perceive less of a need for change.  A socially
important question with minimal opportunities for conflict of interest
would also be nice.  Attractive initial candidate fields include number
theory, meteorology, remote sensing, and particle properties.

Idea futures will have "made it" when it becomes known as a good place
to find out the latest thinking on certain issues, reliably predicting
what will later become consensus in other social contexts.

ADVANTAGES

If its potential problems can be overcome, and a development path
charted and followed, idea futures offers many advantages, most of which
have already been mentioned.

There would be a clear incentive to be careful, honest, and expert when
making public statements.  Opinion holders could be rewarded for being
right, rather than just for being liked by academic insiders.  Those who
invest wisely would accumulate capital and gain influence, which they
could reinvest in discretionary research or in influencing future
consensuses.

Funding agencies would only need to pick important questions, not who
would be good to research them, what methods aught to be used, nor whenrthe research should be done.  Diverse approaches could be tried to
research a question, without arbitrary penalties against crossing
disciplinary boundaries, ignoring fashion and insiders, integrating
pre-existing knowledge, violating methodological ideologies, or using
insights too small or inarticulate to make a publishable unit.  Any
approach by which one could reliably make the consensus odds better
informed could be financially rewarded.

Anyone, not just articulate Ph.D.s, could contribute directly to the
world's corpus of knowledge.  Easily published science odds and amateur
betting should increase popular interest in science.  And even if the
"great unwashed" turn out to be poor contributors, they would subsidize
professional efforts on questions of popular interest, and perhaps
increase the general savings rate.  And I suspect they will do better
than most elites expect.

Clear market odds would ease science reporting.  A visible scientific
consensus would be available to guide public policy, a consensus which
would be self-consistent across a wide range of issues and harder for
media campaigns to distort.  Compared to competing consensus mechanisms,
idea futures should be relatively simple, cheap, decentralized,
egalitarian, responsive to new information, and at least as informative.
This consensus should correct for many current biases, such as
overconfidence.

The mere threat of betting challenges could improve incentives in
discussions and debates.  If the market consensus carried social weight,
it could serve as a coordination point for thousand of independent
conversations.  A rejected visionary would have a new way to get
publicity for his ideas, and a reward for being right against the
establishment; true cranks would subsidize leveler heads. As debates
became settled, they would leave a trail of agreed-upon statements which
could be used to counter bogus claims made by those ignorant of solid
expert consensus.

Businesses could make insurance hedges against technological risk, as in
the cold fusion case.  While such insurance may be legal now, the
introduction of speculators would increase market thickness to a point

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End of Space Digest Volume 15 : Issue 233
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