The Politics of Information Markets,
and Information Markets in Politics
Adam Meirowitz
Joshua Tucker
Princeton University
Politics of Information Markets
• The Legacy of PAM
– Political Reaction
– Media Reaction
– Result for Program
• Lessons from PAM for future political
information markets
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.
What was DARPA’s 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”
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. We’ll find out
about it but its being terminated.”
Postscript
• Admiral Poindexter eventually retires in
embarrassment
• Bipartisan criticism
• All this over a market that never opened
Number of Newspaper articles on PAM
(July-August 2003) Lexis-Nexis search
Opposed Neutral
In favor
Total
News
7
39
2
48
Opinion
49
4
14
67
Total
56
43
16
115
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
Packaging
• Problem: Profit as inherently
dangerous concept politically
• Solution: Frame markets
comparatively
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
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
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 problemManipulate beliefs to influence policy selection
Simple informational environment
• Two states x ε{a,b}, two policies p ε{a,b}.
• Some agents (θ=1) want p=x some (θ=-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?
Communication and voting
• Without transfers communication will not
work.
• Some type (θ=-1) is likely to be in minority
• They want to influence beliefs about x
• So lying about s is a desirable deviation
State contingent transfers
• With transfers that depend on message
and state truthful implementation is
possible.
• Transfer to i needs to compensate for
probability that i’s information moves
posteriors about x in a meaningful manner.
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.
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.
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 x=a.
• 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 P=Bn1/Qn0
Positive result
• We can fix values of B and Q to achieve
the full information majority rule core.
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.