poly: Idea Futures, some questions

From: Nick Bostrom <bostrom@ndirect.co.uk>
Date: Sat May 16 1998 - 21:30:48 PDT

I am a fan of IF and think it's important that it be tried out with
real money as soon as possible. There are however some point on which
I'd like to hear Robin's and other people's comments:

Suppose for some heavily traded claim there is a single research team
who has a good chance of settling the claim. This team would then be
the target of great interest speculators. They might even send out
spies and attempt to infiltrate the group, but at least they would
keep it under close surveillance. This activity is a cost to society.

The research team would try to protect itself from this prying bunch
of speculators, imposing another cost to society. When they settle
the issue, and they want to buy the relevant cupons, they would
prefer to make it look as if the increased demand was due to some
irrational public fad rather then the result of new information. I
don't know what tricks they would play to create that impression, but
it seems they'd be willing to pay a lot to delude other investors.

An even worse case is if the research team discovers a new
experimental technique or research methodology that is not such that
it can be traded on the IF market. Rather than publishing it as soon
as possible, as they would today, they might prefer to keep it secret
for a very long time, in order to use it to settle many issues,
present and future ones, thereby making some money, but in the
meantime withholding valuable information that could have greatly
improved other groups' research. In this case the IF seems to create
an incentive to hide important information rather than to publish it,
again inflicting a cost on society.

One worry that I'm still very vague about is that of asymmetric
information. A.i. is known to destroy markets. The inefficient
market of used cars is used as an example in many economics
textbooks. Now, the idea futures would in many cases be a market with
highly asymmetric informations. Wouldn't this create a analogous
problem as when people want to buy used cars? (The stockmarket is
similar in this respect and seems to work well, but there might be a
significant difference in degree. Also, there are laws against
insider trading.) For example, if I thought that the chance of an
event happening was underestimated, it might be because people are
irrational and have evaluated the public evidence badly, or it might
be because somebody has some secret information. As a result I might
not buy it, or I might have to spend a lot of time trying to keep up
with rumours of insider trading etc. It seems my sagacious evaluation
of the bearing of the public evidence on the issue would be wasted.

A last question. One of the benefits of IF is supposed to be that it
enables a way for funders to fund questions rather than researchers.
Could not this particular benefit be achieved equally well though
science prizes? If so, then the funding of questions is not an
advantage of creating a market of IF, since such funding is available
today without IF.

Nicholas Bostrom
Department of Philosophy, Logic and Scientific Method
London School of Economics
Received on Sun May 17 03:38:11 1998

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