Prediction markets
For years, Robin Hanson and others have been promoting "prediction
markets" and "ideas futures" as means of making various types of
collective judgements under uncertainty more reliable.
The idea involves interested participants "putting their money where
their mouth is" - and betting on possible outcomes.
He suggests that political policy, academic research direction, and
many other fields may benefit from this approach.
However, an oft-mentioned problem with such systems is that they may
allow the rich and powerful to directly influence policy - by simply
throwing money at issues whose outcomes they wish to modify. Such
influences might well eclipse factors which are environmental,
humanist - or otherwise not economic in nature.
Reputation systems
Reputations have been used for years to allow the identification
of trustworthy traders.
Participants carry their transaction history around with them - and
display a summary to prospective traders.
eBay and Amazon have both employ the technique successfully.
Synergy
Combining prediction markets with reputation systems
would involve placing an emphasis on the views of traders
with a good track record of making successful predictions.
This would make it harder for rich organizations to influence minor
decisions. As well as owning capital they would have to set up a
series of traders with successful track records. In order to
deliberately made influential (but inaccurate) bets they would have
previously had to make a positive contribution of a string of
successful predictions to the market.
As well as seeing the overall history, you could ask what
previously-successful traders were saying, or what those with a
successful history of transactions in the same area thought.
Traders could even be authenticated (e.g. by making sure they have
their own mobile phone number) to help prevent identity duplication -
further dicouraging those traders prepared to sacrifice their cash
and their reputations for the chance to influence the market.
Privacy
In some markets, if you know a trader has a good track record, you can
make money by shadowing their investments. However, sometimes this
happens at the expense of the original investor's returns.
This might happen if you are guessing how many beans are in a
jar - and the prize is split beteen those who make the correct
guess.
Under such circumstances, an insightful trader would probably want to
keep their portfolio or their reputation (or both) secret from other
traders while bets are being taken - so they benefit more than others
from their knowledge. Markets should be set up to allow for such
cases.
This type of privacy issue may make it harder to extract useful
information from the market - but normally that cannot be helped.
Synopsis
Reputation systems may not overcome all the flaws of
prediction markets - but they could certainly help to make
them more reliable and trustworthy.
Links
Futarchy: Vote Values, But Bet Beliefs
Issues In Information Market Design
Idea Futures (a.k.a. Prediction Markets, Information Markets)
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