In watching Canadian parliamentary proceedings over the last few years, there have been many an amusing moment where I've realized most of the people constructing proposals, debating issues, or doing interviews, are always either out to deliberately screw us, are actually just not very intelligent, or are somewhat brazenly out of touch and think they're really going to nail it this time. In years prior, I would have assumed that parliamentarians are doing some sort of complicated work that's reserved for those few brilliant and lucky individuals who make their way to the top power positions. But alas, only some are brilliant, maybe about as many as in the general population.

This happens all the time. People close to any administration "leak" plans to the media to see how they land.

Not good? Just deny it. Good? Guess we go ahead.

There's a term for it: Trial balloon, and Wikipedia lists "kite-flying" as what it's called in the UK.

https://en.wikipedia.org/wiki/Trial_balloon

That's not the same as what he's suggesting though is it? He's suggesting a market based approach where you present possible policies to the market and arrange it so that the best one for your metric (e.g. reducing inequality) is also the best one to invest in. Then you enact the policy with the highest price.

Essentially you enlist the modelling skills of all those extremely highly paid quants to figure out which policy is the best.

I imagine it would be quite hard to set up - especially in a way that keeps the incentives you want intact - but I think it's a very interesting idea and deserves to be tried.

Interesting!

I think the reason I'm excited about prediction markets in particular is because I think the average voter, justifiably, does not have the time necessary to familiarize themselves with all the details of a proposed policy and related research on its likely economic ramifications.

I see the kind of in-depth analysis of financial assets that hedge funds currently do as being somewhat wasteful. I would prefer that they switch to policy analysis in the public interest, by betting on which policies will deliver for voters.

"The Thick of It" should be a mandatory watch to understand UK politics.

Yeah especially in UK gov this seems to be standard operating procedure now

This is an interesting idea. Although if anyone has enough money to single-handedly move the market price, it devolves into a dictatorship of that person.

Presumably in a prediction market you're only being paid out if you were right. Someone who sways the market significantly and then ends up being wrong will lose a lot of money.

Oh you’re right.

Robin Hanson has a paper where he argues that such attempts at manipulation won't work: https://mason.gmu.edu/~rhanson/biashelp.pdf

Based on the abstract, I think the essential argument is that a market manipulator acts as "dumb money", attracting "smart money" who are happy to profit by bringing the market back in line with reality.

I think what I got confused by is the idea that a proposal that is “popular with the market” is popular because it reduces inequality and not because it has good financial returns.

Take the inequality example that you mention. Reducing inequality might require large government spending, like free higher education, or extensive government-provided healthcare. This requires funding which pushes up interest rates.

Someone in the prediction market might agree that free higher education reduces inequality but might also think that it will increase the government’s cost of financing its spending. The latter is what usually gives politicians trouble with financial markets. How would a prediction market resolve this issue?

>Someone in the prediction market might agree that free higher education reduces inequality but might also think that it will increase the government’s cost of financing its spending. The latter is what usually gives politicians trouble with financial markets. How would a prediction market resolve this issue?

One approach would be to have multiple markets, that track endpoints like inequality and interest rates separately for any given candidate policy.

In the best case, prediction markets could give you accurate forecasts on a large number of candidate policies, and you could select a policy that the market thinks does a pretty good job according to lots of relevant endpoints. (My hunch is that our current system is bad at searching for such win/win policies, preferring instead the drama that comes from clashing over win/lose policies. For example, you mention free higher education, but how much does the average college grad really use or remember from their degree? I'd argue there is a lot of territory in apprenticeships that is currently unexplored, and smart policy could facilitate this -- especially if we start with small-scale experimentation.)

You're absolutely correct that the market can't help with moral questions such as how much government spending is justifiable in pursuit of reduced inequality. Robin Hanson proposes eventually moving to a system where the job of elected officials is to manage metrics related to what voters want out of government policies, and markets decide the rest. In slogan form: "Vote on values, bet on beliefs." https://mason.gmu.edu/~rhanson/futarchy.html

In that case the person already has enough money to lobby politicians and influence parlement anyway.

Often the market is at odds with the public, preferring short term profits over all else. It seems to serve itself.

I fear applying it to governments would accelerate us into an hyper-capitalist dystopia much faster than we're already heading for.

Part of the idea here is to harness the predictive power of markets to target desirable metrics that are not corporate profits, e.g. low inequality.