Futarchy
Futarchy in a futuristic governance idea originally proposed by economist Robin Handson. The core idea behind it is "Vote on values, but bet beliefs".
Individuals vote on a metric to determine how well their institution (government or coorporation) is doing and prediction markets would be used to pick policies that best optimize the metric.
Two prediction markets, each containing one asset: one for acceptance and the other for the rejection of the proposal.
Process
- Choose a success metric and a maturity duration
- Create and publish a proposed policy
- Set up prediction markets for the "Yes" and "No" options
- Wait some predefined period of time
- Close both markets, the option ("Yes" or "No") with the highest average price defines the implementation of the policy.
- Revert all trades on loosing market
- Wait for maturity and measure the success metric
- Reward everyone on the winning market in proportion to how many tokens they have
Arguments
| In favor | Against |
|---|---|
| Fixes voter apathy and rational irrationality in democracy | Powerful entity/coalition wishing a particular result can push token prices in favor by buying their preferred option and short-selling the other |
| Market gets better overtime | Markets can be exploited by manipulation due to their volatility |
| Reduces irrational social influences to the governance process | Prediction market's result may be uncorrelated to the actual delta of policies |
| Combines public participation and professional analysis | Hard to compress human values to a numerical metric due to their complexity |
Futarchy is likely to work well for large-scale decisions, but much less well for finer grained tasks.
Future improvements:
- Make it hard for execs managing funds to cheat for their short-term interest
- Make governance open and transparent
Sources:
Buterin, V (2014). Introduction to Futarchy. Available at https://blog.ethereum.org/2014/08/21/introduction-futarchy/