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The Politics of Information Markets, and Information Markets in Politics

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The Politics of Information Markets, and Information Markets in Politics Adam Meirowitz Joshua Tucker Princeton University Politics of Information Markets The Legacy ... – PowerPoint PPT presentation

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Title: The Politics of Information Markets, and Information Markets in Politics


1
The Politics of Information Markets, and
Information Markets in Politics
  • Adam Meirowitz
  • Joshua Tucker
  • Princeton University

2
Politics of Information Markets
  • The Legacy of PAM
  • Political Reaction
  • Media Reaction
  • Result for Program
  • Lessons from PAM for future political information
    markets

3
The Legacy of PAM
  • Summer of 2003 Defense Advanced Research
    Projects Agency (DARPA) funds development of a
    Policy Analysis Market for futures on political
    events in the Middle East
  • Robin Hanson knows far more about the project.

4
What was DARPAs proposed informaton market
called?
  • Unbelievably stupid - Sen. Dorgan
  • A futures market in death - Hillary Clinton
  • make believe markets trading impossibilities
    that turn the stomach - Sen. Wyden
  • Dr. Strangelove caught in bizarre betting
    parlor

5
What happened?
  • July 28, Sens. Wyden and Dorgan (D) press
    conference
  • Morning of July 29, NYT and major press sources
    cover
  • Afternoon of July 29, the program is cancelled
  • Deputy Defense Secretary Wolfowitz I share your
    shock at this kind of program. Well find out
    about it but its being terminated.

6
Postscript
  • Admiral Poindexter eventually retires in
    embarrassment
  • Bipartisan criticism
  • All this over a market that never opened

7
Number of Newspaper articles on PAM (July-August
2003) Lexis-Nexis search
8
Media issues
  • Majority of coverage was superficial dealing with
    morality
  • A few stories speculate about
  • Inducement of terrorism-profit motive
  • Terrorists getting rich (External)
  • Manipulation of market by terrorist (Internal)
  • Primacy of Iowa as reference point

9
Packaging
  • Problem Profit as inherently dangerous concept
    politically
  • Solution Frame markets comparatively

10
Profit as inherently dangerous concept
politically
  • Immoral to profit on bad events
  • Threat to manipulation when profit is at stake
    seems more consequential in a political context
  • Throwing a basketball game vs throwing an
    election.
  • Manipulating a stock price vs. a terrorist attack

11
Packaging suggestions
  • Frame market as improvement over other
    aggregation institutions
  • Organizations already exist for these purposes,
    so question is not about topic
  • Question is are markets better at aggregating
    information?
  • Do the actual welfare comparison so politicians
    see the trade offs
  • Provide this information as part of introduction
    so politicians, press can reference it in initial
    evaluations

12
Information Markets in Politics
  • Incentives when information market is imbedded in
    a policy making setting
  • Information from market prices can effect beliefs
    about states which effect preferences about
    policies
  • But this may lead to an incentive
    problem-Manipulate beliefs to influence policy
    selection

13
Simple informational environment
  • Two states x ea,b, two policies p ea,b.
  • Some agents (?1) want px some (?-1) want p?x.
  • Agents know which preference type they are and
    learn a signal s that is informative about x.
  • Mechanism aggregates information and preferences
    and selects p
  • Question Can we get the full information
    majority rule core policy?

14
Communication and voting
  • Without transfers communication will not work.
  • Some type (?-1) is likely to be in minority
  • They want to influence beliefs about x
  • So lying about s is a desirable deviation

15
State contingent transfers
  • With transfers that depend on message and state
    truthful implementation is possible.
  • Transfer to i needs to compensate for probability
    that is information moves posteriors about x in
    a meaningful manner.

16
Message contingent transfers
  • With transfers that depend on just other messages
    truthful implementation is possible.
  • Incentive to be truthful as best predictor of
    other messages is your own message.

17
Decentralizing transfer schemes
  • Give agents choice of Arrow Securities on state
    or on majority message.
  • Prices are selected to satisfy IC conditions and
    budget balance.

18
How about endogenous prices
  • Markets as games (Shapely and Shubik, 1977
    Jackson and Peck, 1999)
  • Endow traders with risk free asset and Arrow
    security that pays off if xa.
  • Allow trader to decide if she wants to sell B
    units of the risk free (action 1) or sell Q units
    of the risky asset (action 0).
  • Set price of PBn1/Qn0

19
Positive result
  • We can fix values of B and Q to achieve the full
    information majority rule core.

20
But.
  • Letting participants determine how much they want
    to trade, can be problematic.
  • Finite populations full aggregation fails
    (Dubey, Geanakopolis and Shubik 1987)
  • Failure of efficient markets hypothesis in these
    games without politics (Peck and Jackson)
  • Open question when imbedded in political problem.
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