John McGinnis, author of Accelerating Democracy: Transforming Governance through Technology, proposes in his book that the government does not take full advantage of the benefits that technology gives. He explains that recent technology can be used to better analyze past, present, and future public policy. In a recent op-ed for Investor’s Business Daily, he explains how prediction markets can serve as a way to discover if policies will be beneficial before they are fully enacted. McGinnis argues that prediction markets are not the same as internet gambling and that they should be legalized as a way to assess policies that fits the technology of today.
Read the full op-ed below.
Information Markets Can Help Washington Make Right Choices
President Obama and Republican leaders will offer conflicting proposals in the coming month to improve the fiscal and economic health of the nation.
Each side argues that their particular proposals are better for stimulating growth, decreasing the deficit and reducing unemployment.
Many of their claims about the beneficial effects of their proposals will be exaggerated, and some will be downright false.
We would be much better off if society had the ability to better assess the likely consequences of these important policy decisions.
Fortunately, we now do have the means to evaluate competing policies, if only Congress will permit it.
Information markets where citizens bet on policy results can help make such assessments. These markets were again big winners in last year’s elections.
Many respected pundits forecast a Romney victory but information markets universally and correctly foretold Obama’s win.
Indeed, on the day before the election, the vote share market run by the University of Iowa predicted the vote shares of both candidates more accurately than the consensus of opinion polls on Real Clear Politics.
This performance is not surprising, because markets gather dispersed information, encouraging citizens with knowledge to put their money where their mouth is.
The resulting wisdom of many minds is likely better than experts, because it includes experts and adds people who are willing to bet against the conventional wisdom.
We could use these same markets to predict the results of policy as well. Each house of Congress should require that any legislation be made public 10 days in advance of the vote. Markets can then be created to analyze the consequences of the legislation.
For instance, one market could be conditional on the fiscal proposal’s passage and people could bet on outcomes in the coming years, such as the economic growth rate and the deficit. Another market could be made conditional on the same bill’s failure to pass and consider the same factors.
We would then have some better sense of whether it would be a good idea for Congress to enact the law.
Of course, such predictions are not likely to be perfect or uncontested, but they are far better than relying on the self-serving comments of politicians and special interests that fill the air today.
Unfortunately, our law makes the effective operation of such markets in the U.S. impossible.
Prediction markets are often confused with Internet gambling, although such markets create benefits for the public, whereas gambling on cards or horses merely sustains private vice.
Oddly enough, the Senate majority leader now wants to permit Internet poker, but tighten regulations that impede prediction markets.
Recently, the Commodities Future Trading Commission prevented a domestic company from creating a new election market and sued an offshore market, Intrade, for permitting Americans to bet.
The CFTC has argued that prediction markets have no public benefits, as if creating a platform where ordinary citizens can join together to predict actual policy outcomes is not a welcome counterweight to the posturing of politicians.
Predictions markets are just one example of the new platforms for increasing social knowledge made possible by advances in information technology.
Other such mechanisms include the generation of big data by which we can better assess the results of past policy.
We can all benefit from making government more experimental and transparent to take advantage of these technological changes.
The more accurate and credible predictions about policy results become, the less room politicians have to engage in ideological frolics.
Changing the tone in Washington is not ultimately a matter of improving manners, but of creating structures to help resolve some of the factual disagreements that divide us.
We should not tolerate a government that inaccurately assesses policy results with outdated methods when new smarter mechanisms are within its reach.
We can navigate the rapids ahead only by using the technology available now to transcend our divisions and make better policy.
Legalizing prediction markets would be an important start.
• McGinnis is a law professor at Northwestern University and author of, “Accelerating Democracy: Transforming Governance Through Technology.”