Michael Abrahmowicz, in his new book, Predictocracy: Market Mechanisms for Public and Private Decision Making, resembles nothing so much as a nutritionist. He takes a piece of fruit (prediction markets, in case you're missing the metaphor) analyzes it in great detail, explains how it works, what makes it good for us, and then proceeds to compare it to other fruits, one by one, showing how they can be combined to make better meals for us, and so on. Which is all well and good, except that sometimes one gets the feeling he's a nutritionist on another planet, not Earth.
Abrahmowicz himself notes the oddity of his exercise. He says: "From the vantage point of today predictocracy is political science fiction. ... And like most science fiction, it seems extraordinarily unlikely to happen."
Not that readers of this blog (and readers of his book, and followers of political elections), aren't familiar with prediction markets. Indeed, some of us are perhaps too familiar. Rather, the idea that we would let prediction markets determine some of the things that Abrahmowicz suggests is not right or wrong, just strange.
For example, using prediction markets to derive legal decisions, while perfectly logical (as he explains it), just seems like it would encounter a tad bit of resistance (from, say, everyone).
At one point Abrahmowicz says "The more ambitious aim of this book has been to argue that bets may often be the best building blocks for institutions," which can only open himself to accusations of proposing not Predictocracy, but Vegasocracy.
This strangeness, and seeming denial of reality, at moments punctuate the book, such as this moment when Abrahmowicz discusses how prediction markets could be used in a severe crisis (such as New Orleans) to determine what actions to take (to evacuate or not to evacuate).
"To be sure, prediction markets will not eliminate the need for some individual decision making, particularly in contexts in which individual officials on the ground must make decisions without the ability or time to consult with superiors [who would be relying on prediction markets]. It will not be practical for a police officer who sees looting to consult the prediction market to determine whether she should arrest looters or allocate scarce time to helping people in need."
Indeed.
In fairness, Abrahmowicz knows that people will see many of his ideas as impractical and weird. This is why he states:
"Already we have seen other market mechanisms assume increasing importance in governance. The notion of pollution trading markets at one time must have seemed bizarre, in part because such markets were so different from previous models of government regulation. "
But perhaps this also leads to the shotgun approach of the book. Multiple ideas in multiple contexts are described and explored, none sticking around long enough to attract too much (unwanted?) attention. The book is a veritable trove of information about legal thinking, and more, but so many ideas are touched it seems hard to know where Abrahmowicz's focus is.
Perhaps preferable would have been if he had selected a few, slightly more realistic ideas, where prediction markets would seem likely to be accepted and where they could provide great value, and then explore those ideas in detail and great length. Instead we are left with a smorgasboard of ideas ... all eminently interesting, no doubt, but ....
That said, how can I not love a book about prediction markets. From the point of view of watching an expert take a powerful idea, turning it over in his hands and examining all the angles, the book is a delight.
Strip away all the talk of policy and normative analysis and one is left with an interesting essay of ideas. In particular his discussion of how prediction markets are different from the stock market in terms of being less vulnerable to inefficiencies (The Danger of Inefficient Markets on page 215) is a delight. In fact, one hopes that Abrahmowicz decides to rewrite this book with some snappier prose and for a wider (non-policy/non-academic) audience. That would be a great little book.
http://www.usablemarkets.com/?p=236
