A short Portrait of the Father of Prediction Markets
“I have a passion, a sacred quest, to understand everything, and to save the world. I am addicted to viewquakes, insights which dramatically change my worldview. I loved science fiction as a child, studied physics and artificial intelligence for a long time each, and now study economics and political science — all fields full of such insights”, writes Robin Hanson on his very entertaining website, where, along with disclosing his Jungian personality type or favorite musicians, he also declares that the best idea he came up with while researching alternative institutions is Idea Futures (a.k.a. Prediction Markets), a proposal to use speculative markets to improve consensus and fund research for science and policy.
With a strong background in physics and an extensive track record of artificial intelligence research at Lockheed and NASA, Hanson felt that his economic proposals were often ignored — his work has been published mostly in unheard-of journals or on Internet discussion boards of the “Extropians”, a group which combines great enthusiasm for technology with an extreme form of libertarianism. He himself says he went to get a PhD in social science at Caltech so that people would finally take him seriously.
At Caltech, Hanson’s research focused on the rationality of disagreement in general and alternative institutions for improving debate. What goes wrong when people debate important questions in science and policy, preventing them from making the best possible estimates, and what can we do to fix these problems? is the question he wanted to find an answer for.
While a grad student, he helped computer scientists implement his first design of Prediction Markets (then called Idea Futures) to set up an online game called the Foresight Exchange, which lets players bet on any topics they propose using play-money. For this web market (which still is the only web market where users can add claims to trade), Hanson received the prestigious electronic art prize Prix Ars Electronica Golden Nica.
Later on, he specifically looked into how such markets could guide policy, and teamed up with the firm Net Exchange to join the United States’ Defense Advanced Research Projects Agency (DARPA) FutureMAP project as a chief architect for the Policy Analysis Market (PAM), a proposed futures exchange which would have allowed futures trading based on countries’ political stability, economic growth, and military readiness.
A professor at George Mason University since 1999, Hanson has demonstrated the information-aggregation power of prediction markets through numerous applications. Today, we’re very happy to officially announce that he joined the Gnosis Advisory team. His help and expertise has been invaluable for Gnosis’ prediction market design and some of his ideas have already been implemented into our core infrastructure: The automated market maker used in our market contract to buy and sell outcome tokens is based on Hanson’s Logarithmic Market Scoring Rule (LMSR).
Whatever their weaknesses may be, Hanson is convinced that markets are better at filtering information and forecasting the future than government representatives or even corporate executives are. While we do still need competent people to ask the right questions and agree on the appropriate metrics to optimize for, markets can give us a quantifiable response on important science and policy questions, and could be used to improve the way both companies and governments make decisions.
In the coming months, Hanson will strongly support us in setting up experiments to test the viability of Futarchy — we would like to experimentally investigate that adding manipulators to a prediction market built on the Ethereum infrastructure does not reduce average price accuracy, and that prediction markets will therefore be among the most manipulation-resistant, as Hanson suggested. We’re so excited to be working together and look forward to sharing a detailed overview of the different experiments soon!
<div class="infobox"><span class="appendinfo">This article was originally published on: <a href="https://blog.gnosis.pm/" target="_blank">The Gnosis Blog</a> on </span></div>