Wednesday, January 28, 2015

Futarchy vs Pragmatarianism

My last two posts were about Robin Hanson...

A recent post by Scott Sumner...Stone Age Economics...inspired me to create my third post in a row about Robin Hanson.  It's a Robin Hanson trilogy!

Thanks to Sumner, I learned about Hanson's idea of futarchy.  Here's the Wikipedia entry...futarchy...and the paper that Sumner linked to... Shall We Vote on Values, But Bet on Beliefs?

As you can tell from the title of this entry...futarchy is similar enough to pragmatarianism to warrant contrast/comparison.  Actually, they are so similar that it's somewhat surprising that I'm only just now learning about futarchy.  This reflects the fact that information is dispersed.

Let's review...

2009:  I started posting online here and there about pragmatarianism.
2010:  A member of the libertarian party facebook page informed me that several years back he had read a short sci-fi story about people choosing where their taxes go.  Unfortunately, he couldn't remember the title or the author.  A web search proved fruitless.
2012 April 17:  A year and a half later, a member of one of the political forums I participated on replied to one of my posts with this...
BTW, there's a science fiction short story based on the premise of individual allocation of taxes. It's called "We the People", written by Jack Haldeman:
2012 April 18:  I posted this blog entry... We, The People - Jack C. Haldeman II
2014 April 17:  Somebody posted a comment on my FAQ page asking whether I'd heard of quadratic voting (QV).  That was the first time that I'd ever heard of it.  QV has been around since at least 2012...which is when Steven Levitt posted an entry about it... An Alternative to Democracy?
2015 Jan 3:  Tyler Cowen posted about QV... My thoughts on quadratic voting and politics as education
2015 Jan 7:  I posted a reply... What Would Tyler Cowen Do For A Klondike Bar?
2015 Jan 9:  Hanson posted an entry on QV...Trade Quarks, Not Votes
2015 Jan 11: I posted a reply... Is Robin Hanson's Path To Efficient Voting Pragmatic Or Brilliant Or Both?
2015 Jan 27:  Thanks to Sumner, I learned about futarchy for the first time.  Hanson proposed futarchy back in 2000.

It should be a self-evident truth that I wish that I had known about Haldeman's sci-fi story and all these other relevant articles and papers sooner rather than later.  Same thing with QV, futarchy, Adam Smith, Bastiat, Mises, Hayek and Buchanan.

Information was inefficiently allocated (I didn't have it)...but then it was efficiently allocated (now I have it).  Increasing the rate at which information is efficiently allocated could be accomplished simply by giving people more opportunity to put their money where their mouths are.  This is exactly what both futarchy and pragmatarianism would do.

Futarchy would create a prediction market for public policies while pragmatarianism would create a market in the public sector.  Futarchy would give people the opportunity to bet their own private dollars on public policies while pragmatarianism would give people the opportunity to bet their own tax dollars on public goods.

These bets would help cut through the bullshit...
Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief.  A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge. - Alex Tabarrok, A Bet is a Tax on Bullshit
A bet instantly raises the marginal private cost of error, which leads to a sharp increase in rationality. Faced with financial consequences, people suddenly - if temporarily - admit to themselves that they know a lot less than they like to believe - and bet accordingly. - Bryan Caplan, Beating the Odds: Why Do People Insist on Even Bets?
The usual touchstone, whether that which someone asserts is merely his persuasion -- or at least his subjective conviction, that is, his firm belief -- is betting. It often happens that someone propounds his views with such positive and uncompromising assurance that he seems to have entirely set aside all thought of possible error. A bet disconcerts him. Sometimes it turns out that he has a conviction which can be estimated at a value of one ducat, but not of ten. For he is very willing to venture one ducat, but when it is a question of ten he becomes aware, as he had not previously been, that it may very well be that he is in error. If, in a given case, we represent ourselves as staking the happiness of our whole life, the triumphant tone of our judgment is greatly abated; we become extremely diffident, and discover for the first time that our belief does not reach so far. Thus pragmatic belief always exists in some specific degree, which, according to differences in the interests at stake, may be large or may be small. - Immanuel Kant, The Critique of Pure Reason
Democracy (voting/shouting) aggregates shallow information (opinions) while markets (betting/spending) aggregates deep information (values).  Let's take prohibition for example.  People voted for it, but I'm pretty sure that when confronted with the alternative uses of their own tax dollars, most of them would have decided that many of the alternatives were far more valuable.

The problem with voting is that, unlike with spending, people are not forced to confront, compare, calculate and personally bear the opportunity costs.  It's simply people stating their preferences...which is why all contingent valuation techniques are aptly referred to as cheap talk surveys.  The inevitable consequence of relying on superficial/shallow input is that allocations which would have created more value are replaced with allocations which create less value.

With this in mind, futarchy is a good idea for the same exact reason that pragmatarianism is a good idea.  But will Hanson agree that pragmatarianism is a good idea?  Or will he decline to comment on the idea just like every other economist?

Well...I'm exaggerating a bit.  Three economists have commented on pragmatarianism...

Noah Smith's critique.  Basically, Smith feels it would be a coordination problem.  As if he would have to consult with me before spending his taxes on public healthcare just like he has to consult with me before buying a pair of shoes.  Except, he's never consulted with me before buying a pair of shoes.  Maybe he would if I was a shoe expert?  I don't want to be a shoe expert.  Being an epiphyte expert is far more rewarding.  And it also explains why people have consulted with me before buying epiphytes.

Arnold Kling's comment...
I think that allowing taxpayers to allocate their taxes would be an improvement, but why stop with government organizations? Why not allow them also to choose from competing charitable organizations? That is what I propose in Unchecked and Unbalanced. 
Why stop with government organizations?'s nice to dream that we can even manage to start with government organizations.

David Friedman's comment...
I don't think that letting taxpayers allocate their taxes among options provided by the government solves the fundamental problems of government.
Isn't the only problem with government the absence of consumer choice?  Or is there a bigger problem?

At the end of this debate between Robin Hanson and Mencius Moldbug on futarchy...David Friedman countered Moldbug's arguments.  Here's a rough transcript of Friedman's counter...
The least important is that it doesn't require Darwinian selection.  There's a prior selection of people's willingness to bet.  That they are putting their money where their mouth is and on average, people know something about whether they know how to play chess or not and the non chess players would be less willing to bet than the chess players.  So that weakens your argument but it doesn't destroy it.  
There are two more serious problems.  One of them is that there's a reason why y is bigger than x and that is because the desire to make money is a common motive for enormous numbers of people.  Whereas any particular outcome is only going to apply to a certain number of people.  You have to think about your Apple example.  It's a wonderful example because it's so bad.  That you, I and everybody else knows what happens if you replace Steve Jobs with a chimpanzee.  Consequently, if Google wants to waste $20 billion dollars trying to bid the odds of that up...there will be much much more than $20 billion because people will say, "wait a minute, Google wants to give us some money, wonderful!"  We know that if Steve Jobs is replaced by a chimp that the Apple stock will fall.  I, as a stock holder, oppose doing that and therefore would like to shift it, just like Google would like to shift it in the other direction, but I, as an investor, know that it's a very very safe bet that the stock will go down if Jobs is replaced and will therefore bet accordingly.  So the fact that your x depends on particular circumstances and particular people, y, common to most people who have money seriously undermines your argument.
Finally, you're assuming that all the x's have the same sign but in any plausible case, such as the political case...there will be some people who want outcome A and some people who want outcome B.  And it's only the difference in the ability of those two groups to push the price one way or another that has to be outweighed by the people who don't care what the outcome is but just want to make money.  Think, for a moment, about futarchy versus alternatives.  And let me suggest an alternative which is a closer model than futarchy is to real political systems both democratic and nondemocratic...and that's a straight bidding war.  The system where people who want a tariff offer congressmen a certain amount of money to pass the tariff, people who don't want the tariff offer a certain amount of money not to pass the tariff and whichever number is larger determines what happens.  It's not a perfect model for how our system works but it's not too bad.  What futarchy does is to weight that system towards the truth.  Futarchy says that if the people that want the tariff are willing to spend more money than people who don't want it...that we'll only get the tariff if the difference is enough to outweigh all the disinterested betters who just want to make money.  So therefore futarchy, as opposed to that alternative, pushes you to more correct decisions.  
From just this portion, you kinda get the sense that Friedman is on board with futarchy...but then later on he does some head shaking.  Plus, how on board could he be if he's never even dedicated a single blog entry in support the concept?  If he had, then I would have learned about futarchy sooner rather than later.

Moldbug, on the other hand, has dedicated an entry to the concept... Futarchy considered retarded.

It really isn't a surprise that Moldbug thinks futarchy is retarded.  The guy really hates democracy but he's entirely clueless about how to improve search engine results...The future of search.  Improving search is as simple as giving people the opportunity to put their money where their mouth is... Crowd Sponsored Results (CSR).

I wonder what Hanson would say about CSR?

On the Wikipedia entry for futarchy...I learned of this blog entry by Tyler Cowen...Where do I disagree with Robin Hanson?  It's not a surprise that Cowen isn't a fan of futarchy either.

But I thought it would be potentially insightful to take the opportunity to do something kinda similar to Cowen's blog entry.  Rather than create a list of things that I disagree with Hanson on...I'll create a list of things that I support.  If it matches his preferences to do so, Hanson can indicate whether he agrees or disagrees with them.

My guess is that he'll agree with all of them.  Why?  Because Hanson is a huge fan of futarchy...which is based on the solid premise that we increase the value of outcomes by giving people more opportunities to put their money where their mouths are.  All the things that I'll list will be based on this same exact premise.  So it will be very fascinating if Hanson opposes any of the things that I support.

For example, if Hanson says that he LOVES bananas...then we should be able to use this information to reasonably predict that he's also a fan of the following...

  • Banana bread
  • Banana chips  
  • Banana splits
  • Banana pancakes
  • Banana smoothies
  • Banana and peanut butter
  • Bananas covered in chocolate

The more of these things he dislikes, the more we'd suspect his LOVE of bananas.  It's not a perfect analogy but the point is to emphasize a common premise.

Here are 5 ideas that I support...

  1. Pragmatarianism (FAQ).  As I've already explained, allowing taxpayers to choose where their taxes go would give them the opportunity to put their own tax dollars where their mouths are.
  2. Crowd Sponsored Results (CSR).  Allowing the crowd to dollar vote up...or results would vastly improve the rankings.
  3. Unbundling Cable.  Unbundling cable would give consumers the opportunity to put their money where their favorite channels/shows were.  For more info... Crazy Cable Confusion: Costless Content Creation
  4. Netflix fee allocation.  Netflix subscribers should be able to allocate their monthly fees to their favorite shows.  Haven't written about this one yet.
  5. Vote trading.  Allowing people to buy and sell votes would give them the opportunity to put their money where their votes are.  For more info...What Would Tyler Cowen Do For A Klondike Bar?

All these ideas follow from the basic premise that the outcome is more valuable when people are given the opportunity to put their money where their mouths are.  In other words, they all flowcilitate deep input.

We're essentially trying to answer the fundamental question of what we should do with society's limited resources.  People's answers to this question are more accurate/honest/truthful when they are given the opportunity to spend their own money.  As the accuracy of their answers improve, so too will the value of the allocation.

Probably the best heuristic for computer geeks is Garbage In, Garbage Out.  Socialism (command economies = our public sector) produces garbage because the input is garbage.  The input is garbage because it doesn't accurately reflect people's values.  If the input doesn't truly reflect people's values, then why would people truly value the output?

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