Michael Perelman wrote:
> Robin, I have several questions about your scheme. 1. I mentioned before about the
> apparent irrationality in both stock markets is in foreign exchange markets. 2. In
> those markets, you have people with training and with access to enormous amounts of
> information. Among the public, you have people who are inundated with misinformation
> daily. Would the markets you propose aggregate information or disinformation?
Yes of course, the world of people is filled with irrationality and
disinformation.Therefore any institution built from people will also suffer from these.
But the question
we must ask is this *comparative* institutional one: Which social institutions for
information aggregation provides on average the most accurate estimates, presumably
in part by muting these problems? There are some suggestive theoretical arguments why
speculative markets would do well at this, and some encouraging data showing them
doing well, though of course these are far from definitive.
> 3. In California, a few people are spending $50 million for an initiative on school
> vouchers. The payoff for the private education industry is many, many times greater
> than that amount. In these markets, couldn't a self-interested group spend a small
> amount of money to rig the outcome?
If speculators saw advocates trying to bias a market price in order to influence a
decision,they would have incentives to counteract that bias by trading on the other
side. And since
speculators have far more than $50M to spend, they would easily win this fight. A more
serious problem is where speculators fear that the people spending this $50M actually
do
know something that others do not. This would seem to allow people to bias results by
choosing not to reveal information. But in theory at least there isn't a bias when we
average
over the possible things they might know. Also, again, the real question is
comparative
--
what alternative estimation institution is less able to be biased by interested
parties?
