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Title: Predictocracy: Market Mechanisms for Public and Private Decision Making
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Manufacturer: Yale University Press
List Price: $50.00
Our Price: $29.99
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| Predictocracy: Market Mechanisms for Public and Private Decision Making by Yale University Press Almost a great book | This had the potential to be an unusually great book, which makes its shortcomings rather frustrating. It is loaded with good ideas, but it's often hard to distinguish the good ideas from the bad ideas, and the arguments for the good ideas aren't as convincing as I hoped.
The book's first paragraph provides a frustratingly half-right model of why markets produce better predictions than alternative institutions, involving a correlation between confidence (or sincerity) and correctness. If trader confidence was the main mechanism by which markets produce accurate predictions, I'd be pretty reluctant to believe the evidence that Abramowicz presents of their success. Sincerity is hard to measure, so I don't know what to think of its effects. A layman reading this book would have trouble figuring out that the main force for accurate predictions is that the incentives alter traders' reasoning so that it becomes more accurate.
The book brings a fresh perspective to an area where there are few enough perspectives that any new perspective is valuable when it's not clearly wrong. He is occasionally clearer than others. For instance, his figure 4.1 enabled me to compare three scoring rules in a few seconds (I'd previously been unwilling to do the equivalent by reading equations).
He advocates some very fine-grained uses of prediction markets (PMs), which is a sharp contrast to my expectation that they are mainly valuable for important issues. Abramowicz has a very different intuition than I do about how much it costs to run a prediction market for an issue that people normally don't find interesting. For instance, he wants to partly replace small claims court cases with prediction markets for individual cases. I'm fairly sure that obvious ways to do that would require market subsidies much larger than current court costs. The only way I can imagine PMs becoming an affordable substitute for small claims courts would be if most of the decisions involved were done by software. Even then it's not obvious why one or more PM per court case would be better than a few more careful evaluations of whether to turn those decisions over to software.
He convinced me that Predictocracy will solve a larger fraction of democracy's problems than I initially expected, but I see little reason to believe that it will work as well as Futarchy will. I see important classes of systematic biases (e.g. the desire of politicians and bureaucrats to acquire more power than the rest of us should want) that Futarchy would reduce but which Predictocracy doesn't appear to alter.
His description of why short-term PMs may be more resistant to bubbles than stock markets was discredited just as it was being printed. His example of deluded Green Party voters pushing their candidate's price too high is a near-perfect match for what happened with Ron Paul contracts on Intrade. What Abramowicz missed is that traders betting against Paul needed to tie up a lot more money than traders betting for Paul. High volume futures markets have sophisticated margin rules which mostly eliminate this problem. I expect that low-volume PMs can do the same, but it isn't easy and companies such as Intrade have only weak motivation to do this.
[...]
| | Predictocracy: Market Mechanisms for Public and Private Decision Making by Yale University Press Predictocracy Review | Michael Abrahmowicz, in his new book, Predictocracy: Market Mechanisms for Public and Private Decision Making, resembles nothing so much as a nutritionist. He takes a piece of fruit (prediction markets, in case you're missing the metaphor) analyzes it in great detail, explains how it works, what makes it good for us, and then proceeds to compare it to other fruits, one by one, showing how they can be combined to make better meals for us, and so on. Which is all well and good, except that sometimes one gets the feeling he's a nutritionist on another planet, not Earth.
Abrahmowicz himself notes the oddity of his exercise. He says: "From the vantage point of today predictocracy is political science fiction. ... And like most science fiction, it seems extraordinarily unlikely to happen."
Not that readers of this blog (and readers of his book, and followers of political elections), aren't familiar with prediction markets. Indeed, some of us are perhaps too familiar. Rather, the idea that we would let prediction markets determine some of the things that Abrahmowicz suggests is not right or wrong, just strange.
For example, using prediction markets to derive legal decisions, while perfectly logical (as he explains it), just seems like it would encounter a tad bit of resistance (from, say, everyone).
At one point Abrahmowicz says "The more ambitious aim of this book has been to argue that bets may often be the best building blocks for institutions," which can only open himself to accusations of proposing not Predictocracy, but Vegasocracy.
This strangeness, and seeming denial of reality, at moments punctuate the book, such as this moment when Abrahmowicz discusses how prediction markets could be used in a severe crisis (such as New Orleans) to determine what actions to take (to evacuate or not to evacuate).
"To be sure, prediction markets will not eliminate the need for some individual decision making, particularly in contexts in which individual officials on the ground must make decisions without the ability or time to consult with superiors [who would be relying on prediction markets]. It will not be practical for a police officer who sees looting to consult the prediction market to determine whether she should arrest looters or allocate scarce time to helping people in need."
Indeed.
In fairness, Abrahmowicz knows that people will see many of his ideas as impractical and weird. This is why he states:
"Already we have seen other market mechanisms assume increasing importance in governance. The notion of pollution trading markets at one time must have seemed bizarre, in part because such markets were so different from previous models of government regulation. "
But perhaps this also leads to the shotgun approach of the book. Multiple ideas in multiple contexts are described and explored, none sticking around long enough to attract too much (unwanted?) attention. The book is a veritable trove of information about legal thinking, and more, but so many ideas are touched it seems hard to know where Abrahmowicz's focus is.
Perhaps preferable would have been if he had selected a few, slightly more realistic ideas, where prediction markets would seem likely to be accepted and where they could provide great value, and then explore those ideas in detail and great length. Instead we are left with a smorgasboard of ideas ... all eminently interesting, no doubt, but ....
That said, how can I not love a book about prediction markets. From the point of view of watching an expert take a powerful idea, turning it over in his hands and examining all the angles, the book is a delight.
Strip away all the talk of policy and normative analysis and one is left with an interesting essay of ideas. In particular his discussion of how prediction markets are different from the stock market in terms of being less vulnerable to inefficiencies (The Danger of Inefficient Markets on page 215) is a delight. In fact, one hopes that Abrahmowicz decides to rewrite this book with some snappier prose and for a wider (non-policy/non-academic) audience. That would be a great little book.
http://www.usablemarkets.com/?p=236 | | Predictocracy: Market Mechanisms for Public and Private Decision Making by Yale University Press Product Description | Predicting the future is serious business for virtually all public and private institutions, for they must often make important decisions based on such predictions. This visionary book explores how institutions from legislatures to corporations might improve their predictions and arrive at better decisions by means of prediction markets, a promising new tool with virtually unlimited potential applications.
Michael Abramowicz explains how prediction markets work; why they accurately forecast elections, sports contests, and other events; and how they may even advance the ideals of our system of republican government. He also explores the ways in which prediction markets address common problems related to institutional decision making. Throughout the book the author extends current thinking about prediction markets and offers imaginative proposals for their use in an array of settings and situations.
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