Also call markets don’t aggregate info as well as continuous double auctions, and you aren’t offering any incentives to find and add info.
Yes, this mechanism does sacrifice some info-gathering abilities. This is the trade-off of not adding liquidity. Two responses to that!
The short one: the currently existing stock market does well enough of without adding liquidity, because people hedging add liquidity for free. This effect will be present for this system as well. For example, if an investor Sylvester’s portfolio has a lot of chemical manufacturing companies, and a futarchy proposal directs ACME to start manufacturing chemicals, than Sylvester will undervalue the proposal slightly since it increases the risk of his portfolio. These myriad of small price differences between investors gives free liquidity.
The long, more interestingly one: you can add back in the incentives from the standard futarchy into the sealed-bid futarchy, and I think this has unique advantages over the standard futarchy!
Your Futarchy Liquidity Details post details how to turn money into information, but you also seem to indicate you are not confident in the robustness of the system. On the other hand, my system does not incentive information gathering, but is robust enough that even a shareholder with 999,999 shares cannot scam a shareholder with only 1! How do we combine these?
We can combine these systems into one where, if someone manipulates the prediction market, only their prediction market counterparts suffer and the futarchy participants do not!
Here is the combined system: When ACME is founded, their starting policy is to send, say, $1000 a week to a prediction market to provide liquidity for markets predicting the values of their proposals. (The sealed-bid futarchy can change this policy at any of time.) The prediction market, in turn, will arbitrage between their prediction contracts and the sealed-bid futarchy. If they do things poorly and get manipulated, participants of the prediction market will get scammed, but the futarchy will still be robust. If a foolish proposal C is gaining traction, all of the current investors can put in sell-bids. C can only pass if its price is higher than any reasonable proposal, so the investors are happy selling. When the prediction market is operating properly, however, it incentives people to collect valuable information about the value of the futarchy proposals, and this information flows to the futarchy thanks to the arbitrage.
Essentially, the sealed-bid futarchy is a robust, simplistic core that investors can trust, and the conditional prediction market is a turbo-boost on top for gathering information.
Moreover, the futarchy doesn’t need to be tied to one prediction market. They could choose to start sending funds to other prediction markets, each employing different liquidity strategies. In particular, they would do so if the added information from that market is worth the money they would pay to that prediction market.
So, the sealed-bid futarchy + prediction market is very similar to the standard futarchy, but with a wall of robustness separating the investors from the “games” the predictors use against each other.
Yes, this mechanism does sacrifice some info-gathering abilities. This is the trade-off of not adding liquidity. Two responses to that!
The short one: the currently existing stock market does well enough of without adding liquidity, because people hedging add liquidity for free. This effect will be present for this system as well. For example, if an investor Sylvester’s portfolio has a lot of chemical manufacturing companies, and a futarchy proposal directs ACME to start manufacturing chemicals, than Sylvester will undervalue the proposal slightly since it increases the risk of his portfolio. These myriad of small price differences between investors gives free liquidity.
The long, more interestingly one: you can add back in the incentives from the standard futarchy into the sealed-bid futarchy, and I think this has unique advantages over the standard futarchy!
Your Futarchy Liquidity Details post details how to turn money into information, but you also seem to indicate you are not confident in the robustness of the system. On the other hand, my system does not incentive information gathering, but is robust enough that even a shareholder with 999,999 shares cannot scam a shareholder with only 1! How do we combine these?
We can combine these systems into one where, if someone manipulates the prediction market, only their prediction market counterparts suffer and the futarchy participants do not!
Here is the combined system: When ACME is founded, their starting policy is to send, say, $1000 a week to a prediction market to provide liquidity for markets predicting the values of their proposals. (The sealed-bid futarchy can change this policy at any of time.) The prediction market, in turn, will arbitrage between their prediction contracts and the sealed-bid futarchy. If they do things poorly and get manipulated, participants of the prediction market will get scammed, but the futarchy will still be robust. If a foolish proposal C is gaining traction, all of the current investors can put in sell-bids. C can only pass if its price is higher than any reasonable proposal, so the investors are happy selling. When the prediction market is operating properly, however, it incentives people to collect valuable information about the value of the futarchy proposals, and this information flows to the futarchy thanks to the arbitrage.
Essentially, the sealed-bid futarchy is a robust, simplistic core that investors can trust, and the conditional prediction market is a turbo-boost on top for gathering information.
Moreover, the futarchy doesn’t need to be tied to one prediction market. They could choose to start sending funds to other prediction markets, each employing different liquidity strategies. In particular, they would do so if the added information from that market is worth the money they would pay to that prediction market.
So, the sealed-bid futarchy + prediction market is very similar to the standard futarchy, but with a wall of robustness separating the investors from the “games” the predictors use against each other.