My Best Idea: Decision Markets

Many (Poincaré 1908, Schumpeter 1911, Ogburn 1922) have said that, as there are so many good ideas out there, most innovation is just simple combos of prior good ideas. This seems true of my best idea.April 25, 1996, thirty years ago today, I first posted my best idea: decision markets, i.e., speculative markets that advise specific decisions by estimating decision-conditional outcomes. A.k.a., “futarchy” when applied to governance. It’s not my deepest, most elegant, or hardest won insight, just the one with the biggest expected impact.My idea was a simple combo of two other long-well-known ideas.The first prior idea I built on is that speculative markets do quite well at aggregating info. This was explored in theory (Emory 1896, Gibson 1889, Bachelier 1900) and in data (Cowles 1933, Working 1934). Even so in 1996, US regulators in practice only allowed risk-hedging, not info aggregation, as an “economics rationale” to allow markets to exist. (The allowed “price discovery” rationale…