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Overcoming Democracy: Hanson’s Futarchy

August 13, 2009

This blog’s gospel is that we need more innovation in governance.  We also need diversity. Complacency with either is our bugbear. But let us criticize democracy by offering ways of amending it. In a recent, but little commented on post, Robin Hanson does just that. From an article he’s published in BBC Focus:

…a vast space of possible forms of government remains unexplored, and it is high time we explored it. Yes, democracy beats a dictatorship, but there might be better systems.

First, let’s be clear on the main problem, and it isn’t politicians lying, exploiting the expense system, or selling us out. Far worse is that politicians approve bad policies – policies that the available information suggests just won’t work. We waste billions on wars, tariffs, and schemes that experts expect will fail.

This happens not because politicians can’t consult the best experts, but because we, the voters, tie their hands. We believe democracy’s flattering lie that each voter’s opinion is just as valid as anyone else’s. But, in fact, most voters’ opinions about what works are usually awful.

His modest proposal:

Under what I’ve called `futarchy’, we could continue to use democracy to say what we want, but use speculative markets, similar to the stock market, to decide on the best way to get it. Our elected representatives could formally define and manage an after-the-fact measurement of national welfare, an augmented GDP, while market speculators show us which policies will best help us to achieve improvements in it.

Anyone willing to pay a deposit could put forward a proposal to become policy. Two betting markets then open – one predicting welfare if we adopt the proposal and the other predicting welfare if we don’t. The basic rule would then be: a day after market prices clearly estimate national welfare to be higher given the proposal than without it, that proposal is adopted. If it is adopted, the deposit is refunded 10 times over and investments pay off years later, after national welfare is measured. Speculators can of course sell their entitlement to a share of any pay-off in the future and those who buy low and sell high are rewarded for improving the prediction.

There’s a persuasive theory underlying Hanson’s proposal, but we’ll never know how well it works until someone puts it to the test. The benefits could be enormous. This is just the kind of innovation in rules that we hope for and it’s why seasteading and Charter Cities are so important. My guess is that Hanson’s potential innovation has a better chance getting tested in either of those two domains than in Sacramento, Austin, Albany or D.C.

  1. January 9, 2010 8:35 am

    Dear Mike et al

    For those of you not familiar with Mr. Kofmel I invite you to visit our website and read a selection of the press articles or watch the recent BBC television documentary about him (also on that website). Mr. Kofmel is an internationally wanted fraudster on the run from the police in several countries.

    Need any further info… drop me a line


  2. Mike Gibson permalink*
    January 7, 2010 8:08 pm

    Thanks, I’ll definitely keep up with you.

  3. January 7, 2010 5:44 pm

    Check out my new blog, the “Anti-Democracy Agenda”:


  4. Mike Gibson permalink*
    August 13, 2009 4:42 am

    True. I saw your offer for a bet on charter cities over at Marginal Revolution. Did anyone take you up?

    I have searched but I cannot find any prediction markets offering contracts on either seasteads or charter cities. Can we establish one?

    • August 13, 2009 5:28 am

      Yeah. I want to bet that seasteads with futarchic democracies will be the best ones!

      • August 13, 2009 4:47 pm

        I want to bet against Will. I suspect the average seastead will be more like a privately-owned apartment building than like a democracy. When you go on a cruise, does it bother you that you don’t get to vote on how the ship is run? When you buy a hamburger, does it bother you that you didn’t get to vote on how the restaurant is run? Good governance ought to fade into the background. You could sign up for it in advance, like internet service, or have it provided as part of your rent, like electricity, or pay-as-you-go for specific services such as dispute resolution.

        Government is a bundle of services; I’d like to pick a service provider who has demonstrated an ability to provide the service well and provides me (a) a few quality guarantees and (b) the right of exit. It’s silly to think that I could improve on that outcome by getting together with a thousand other people and convincing them to vote the way I want them to. That’s like thinking I could improve the meal at a fancy restaurant by having the customers collectively vote on how many seconds to cook the steak.

  5. August 13, 2009 3:05 am

    Well conditional on those domains existing, you are probably right.

    • August 13, 2009 4:48 am

      Even without the conditional, he might be right. Well, for the next decade or two, at least. Futarchy could win via a slow growth and acceptance of prediction markets which eventually influence politics (in decades). But in the next 15 years, I think the chance of a traditional nation-state implementing any significant amount of futarchy is less than 5%.


  1. There’s a persuasive theory underlying Robin Hanson’s proposal… | Midas Oracle .ORG

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