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Policy Markets

mason.gmu.edu · 893 words · saved by 1 readers

The right market, however, could give us neutral expert estimates on such question! For example, an estimate of the probability that the U.S. will go to war given that Clinton is elected would be given by the market price (or odds) of bets on war, with the bets being called off if Clinton is not elected. And the price of bets on war which are called off if Clinton is elected would estimate the probability of war if Clinton is not elected. The difference between these prices estimates whether war is more or less likely given we elect Clinton, and is directly relevant to the question of whether we should re-elect Clinton. This same called-off-bet approach can be used with any policy question. For example, prices in a market which traded a stock market basket (such as S&P500 futures) for cash, but which called-off these trades depending on who became the next president, would estimate which current candidate would be best for the stock market (and should be insensitive to who actually win

by Robin Hanson What They Are A policy market is a market created to directly inform policy decisions with its price. That is, while the market may also serve other functions, such as hedging or entertainment, its primary function is to create prices which embodies information which is directly relevant to people considering some choice between policy alternatives. The perceived function of most financial markets, in contrast, is to allow people to hedge and rebalance their portfolios. (See, for example.) And the perceived function of most gambling markets is to entertain. For example,…

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