12/26/1991 Alexander Chislenko

The Foresight Market and research funding.

In the No. 10 issue of the "Foresight Update" Robin Hanson presented an interesting proposal to create a betting market for dealing with scientific and technological controversies, which would attract people to the discussions and offer them incentives to be honest and responsible in expressing their opinions. I think it is a good idea and would like to contribute some thoughts and suggestions.


A man is accused of paying the mafia for killing his uncle. He defends himself: "no, I just said: I bet $10,000 that my dear old uncle will live for another 10 years... - and they accepted the bet."

This anecdote, however sad it may sound, shows that there is a very fine line, if any, between a bet and an order for action.


Suppose, a research group A sees that the market bets 20 to 1 against the feasibility of a project X (or the validity of a statement Y), and the trading volume is high enough, and the group is 90% sure that it can do (or check) it for this money. The group then can start betting for the project, thus buying rights to receive market funds after the work is completed. It is likely that the market will not react with much additional money, and with the group itself becoming a major player, the stakes will soon reverse to 10 to 1 FOR the project - the group's honest and sincere estimate of its own chances to do the work properly and in time. Another group, B, which thinks its chances to do the work are 60%, and needs two times as high trading volume to cover its costs, will drop its 'bid' and sell its 'bet stocks' to group A. (In current conditions, it well might win the bid, e.g., using its strong contacts in Washington or good PR skills.) If, however, the group B wants to work on the project itself and thinks that the group A is very unlikely to fulfill it and is just trying to steal the job - it can bet AGAINST the feasibility of the project while working on it itself, watch the group A fail, cash the bets, and show its own work at any time after the deadline.


We can expect that market orders will be picked by groups with the highest chances and the lowest costs of doing the projects - by their own best and most sincere estimates. (Ideally.) The trading volumes would oscillate around expected minimal costs of the projects.

But there will, of course, be bets about some extremely costly, complex and uncertain projects - like human landing on Venus by 2030 or ever finding an ultimate cure for cancer, and the market just won't be able to put much enough 2 money into them. If even it did, though, any organization willing to work on the project would have to borrow a lot of money both for the bets and for covering its operating costs - for which it would have to convince the creditors that its estimates are trustworthy, and then they - not the 'betholders'! - would be responsible for the quality of their estimates.

If the size of the market is not big enough - we could call it a 'curiosity market' as opposed to the 'order-for-action market' described above - it is still very useful, since it encourages all of the participants to improve their knowledge of the subject and sharpen their foresight. But even in this case, the market may fund some practical action. For example, a single scientist, who feels that the market underestimates the feasibility of some grand undertaking, can bet for it at a current rate of, e.g., 1 to 30, do some preliminary research, publish its results to convince other market players, and sell his bets back at the new rate of, say, 1 to 5, thus handsomely rewarding himself for both his work and foresight.

Such market funding will be most efficient when the general opinion is very skeptical about the project. And it is exactly this early stage in the development of a big project when it can be speeded up with minimal expenses (as opposed to investing extra billions of dollars to gain a few months at its end), but no conventional sources of funding are yet available.


As the story with an uncle shows, individuals and organizations willing to facilitate the development of a certain project can just place their bets against it - and not only be sure that the work, if it is at all possible to do it for that money, will be done by a group with low costs and high chances of success - but will also draw additional funds from the market, and even receive some consolation money if the project fails.


It seems that in many cases neither a deadline nor a jury will be necessary. If the market is now more convinced than before that some statement is true, it is by itself an opportunity for the statement's supporters to benefit from their bets, and no official verifications are needed. To play, one would need to foresee the shifts in the market's opinions and interests, and place bets for the statements most likely to soon gain public confidence. One can also be allowed to withdraw all or a part of his stake at any time by [an equivalent of] betting against himself according to the current odds, and then taking away the money he has put for both sides - without affecting anyone else's interests. The presence of a jury is costly, complicates the situation, is unnecessary when the jury agrees with the market's opinion, and creates conflicts and public discontent when it doesn't. The checking can still be performed voluntarily by any group of market players, and they will have all incentives to make sure that the timing is right, the costs are reasonable, and the results are convincing. - And this is exactly how other markets work - the role of regulation being to provide a framework and enforce the rules, but not to distort the process itself by any direct involvement - unless it is really necessary.

If a claim does have a deadline, we can suggest a moratorium on betting for a certain [considerable] period of time before this deadline - to prevent the participants from wasting their far-sighted minds in the final race for the information on the latest details of the project.


Of course, the idea of such a market has its limitations and wouldn't work as simply and ideally as described above. Here is a list of some of the difficulties I expect to arise (most of them also apply to, and are more or less successfully resolved in, all conventional markets), together with some reassuring remarks:

The market will react on every scientific and popular publication - just as the stock prices now jump with news and rumors on events in the Persian Gulf, planned mergers and acquisitions, fashion changes, etc., which will be advantageous for short-sighted, but practical people. (But they will have to seriously study the dynamics of popular scientific beliefs - a practically untapped and important enough area to let them earn some money; besides, they will be interested in attracting the public to scientific and technological discussions).

The stakes and trading volumes in the market will reflect public beliefs and interests rather than the best available expertise and real social needs, and will not necessarily lead the research in the best directions. (- Well, nothing is perfect. Still, this market has its benefits, and much useful work can be done under its control. Meanwhile, the knowledge will flow to the public, and the money will flow to the wise, both of which mean better foresight and decision-making in future.)

The players will have a temptation to pull incompetent people into the game and even to deliberately mislead the public opinion. (But, generally speaking, it must be easier to shift the public opinion in the direction of the truth, than otherwise, and fraud would be a risky exception, rather than a rule. Besides, we can expect the other side, as well as thinkers from outside the market, to present their own arguments, and may hope that both the subject and the public will only be better off after an extensive discussion.)

The process described doesn't make any group accept responsibility for a project. (But it, just like the stocks and commodities markets, creates the incentives; and 'responsibility' is a word that just does not apply to diffuse (market) regulation systems. So, if you want to make sure that something really gets done by a certain date, you better sign a contract - or work on it yourself - with the help of the market's funds.)

In many cases, market players would be interested in the projects not being done by the set deadline - with, possibly, some chances to negatively influence the events. (But there will also be opposite interests, especially if the problem is of any practical value - and is not that bad, after all, to have the supporters of useless projects lose. I wish, though, that 'useful' and 'profitable' meant the same - but that's what we can expect from any market.)

If several groups simultaneously decide to do the job, and start betting, the stakes will rise without promising any of them a high enough reward to justify the development costs. And the work would stall. (But after some time, the market will lose faith in this project and bet against it, thus changing the stakes to make betting for potential developers more profitable; besides, some of the groups will quit the game and sell their bets to others to free cash for other purposes. And even if the funds are insufficient, it is still an opportunity for a developer to receive some extra money - and it is certainly better to have a small help than to have none.)

Commercializing this sphere of social life means letting Greed make one more step into the house of Wisdom. The house may just not look as nice after it. (Though the two have been increasingly dating since ancient times, and seem to be fairly compatible. And the closer they were, the faster grew the house.)

This mechanism by itself will hardly be sufficient for education on, or funding of, any given subject, and will have to be carefully integrated with other existing methods of work and coordinational entities.

But it is a promising idea, and in my opinion it is well worth working on; its limitations mean that we have not a panacea, but only a new organ in the growing social organism - which is just what one could expect - and with time we'll learn how to use its benefits and fight its faults.


The idea seems to be interesting enough to be presented, after some home discussion, in a good popular periodical ("Scientific American"?; "The Futurist"?), which might bring both wider support and further implementation proposals. I would suggest to avoid using the word 'bets', however, as giving a somewhat illegal flavor to the project. Without this word, people would still enjoy the idea, but those in power will have less reasons to object. After all, aren't all other markets a kind of legalized gambling? But they do not carry this name, are considered to be of public value (at least, in this country), and obey the law; and so can "the Foresight Market" or whatever other name may be chosen for it.

The market can be envisioned to play two major roles: provide funds and educate the public in new and non-conventional areas of research. (Old conventional ones are already well (in the sense of: much) organized and will fiercely and successfully resist it for quite a while.) Here the market can gain a lot from using the electronic media - electronic bulletin boards, networks, distributed Hypertext systems, etc., under the supervision of special interest groups authorized according to yet inexisting laws to engage in such market activities. It can merge with other commercial activities developing in these media, starting from membership and user fees collection, authors' royalty payments and electronic banking, and help to collect funds and organize work in the areas little known to the general public and/or ignored by the R&D establishment.


There seem to be many areas where the development is considerably slowed down by the lack of necessary decision-making structures, where we still actually have various combinations of a few basic schemes. Many interesting and useful studies and projects, from morphogenetic fields to nanotechnology to global on-line banks of software and texts, cannot be implemented by any of these schemes: they are too difficult for a democracy (with its increasingly [relatively] incompetent population), too complicated for an autocracy and too visionary for a bureaucracy (and, unlike most of the research projects of the relatively recent past, far too big for any single human genius, if even s/he is free from most of their organizational limitations). As a result, the streams of social development flow from these existing structural spouts, often leaving unexplored islands in rich intermediate territories - just because the whole process is blind. If it was not, it would certainly adapt its control methods to the requirements of the environment, rather than just trying to spread its tentacles still farther in the same directions. To do this, and to bring some consciousness into the process of the mankind's development, we must continue the search for new and more efficient ways of organization, utilizing the skills of intelligent and open-minded people and the advantages of modern technology.

The Foresight Market seems to be a good attempt to advance in this direction.

It also seems to be the swan song of the market idea, before the rising wave of planet-wide social integration pushes all markets into small niches of development regulation network. The global technostructure is (and will be - at least for a few more decades) orderly moving along the traditional system integration paths, and the [relative!] importance of markets as systems of local checks and balances will diminish while the whole thing starts looking more like a single organism of high-tech Gaia, than a loose colony of free independent entities. However, while eagerly watching this process, we can enjoy the fruits of the Foresight Market, which will only facilitate the transition.


Alas, with social hierarchies turning into networked structures, the old dream of many great thinkers - to occupy positions on the [rapidly dissolving] top of this very imperfect society to at least try to improve it - now looks more like a missed opportunity. But still we can hope that some day the processes of social self-organization will put people with foresight into the positions [in new exterritorial social entities] they deserve. This market could start this process by letting them (at the long last!) gain commercial benefits from sharing their wisdom. But first the thinkers should have money to bet... And some wishful thinking: since the social and technological progress tends to eventually exceed our boldest expectations, it seems that we, the optimists, will tend to gain from the market activities at the expense of the pessimists - and at the same time will have those gloomy skeptics fund all of our projects! - Well, you can recognize an optimist in this forecast.

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