A Call to Adventure
Hanson&#x27;s &quot;Adventure #1&quot; is the promotion of futarchy, or rule by (prediction) markets. This is one call I fervently hope goes unanswered. It&#x27;s the most dangerous sort of bad idea - namely, one that produces good results in small-scale trials.<p>Prediction markets perform great, <i>so long as they don&#x27;t matter</i>. The idea is that you make a contract that pays out if some future event occurs (eg &quot;pay the holder $1 if Donald Trump is re-elected in 2020&quot;), and then you trade it on an exchange (like the stock market). If the market price is $0.50, that means a 50% chance of Trump winning. This produces much better estimates than listening to pundits on TV, because traders profit by being <i>right</i> (rather than, eg, getting good ratings, or looking good to their boss). Prediction markets perform very well in studies, and so Hanson et al propose we should use them to make all our decisions.<p>That&#x27;s where things go from empirically great to predictably terrible. Goodhart&#x27;s Law[1] says that if you use a measure to control a process, it stops being a good measure. (Think of the Soviet nail factory which was rewarded for each ton of nails produced - so produced a single, massive nail each day.)<p>If you make decisions based on a prediction market, any successful pump-and-dump scammer can control your decisionmaking. Put another way, every decision can be bribed (by someone willing to lose enough money moving the market price).<p>Proponents counter that the market will self-correct (eg it&#x27;s difficult to move IBM&#x27;s stock price much just by betting on it, cause lots of people will bet against you). But the S&amp;P 500 is a well-developed, liquid market. If futarchy were ever implemented, the policy equivalent of the Pink Sheets[2] would be carnage.<p>[1] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Goodhart's_law" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Goodhart's_law</a><p>[2] <a href="http:&#x2F;&#x2F;www.investopedia.com&#x2F;ask&#x2F;answers&#x2F;201.asp" rel="nofollow">http:&#x2F;&#x2F;www.investopedia.com&#x2F;ask&#x2F;answers&#x2F;201.asp</a>