Personal Reputation Futures (and other recursive markets)
Byrne (byrneseyeview.com)
futures? Just for argument, I'd standardize one as follows: "X borrows
a nominal sum from a stranger Y, at the risk-free interest rate. This
contract returns $1 if the loan is repaid in full and $0 otherwise."
The value of the contract quantifies how trustworthy X is (to the
extent that this can be quantified -- and financial instruments do
have the nice quality of condensing ephemeral properties into
measurable quantities).
It's been mentioned offhand -- and without an implementation -- in
Charles Stross' Accelerando ( http://accelerando.org ), and it sounds
like a useful source of information. It could be the next decade's
equivalent to the cursory Googling to determine if a potential
employee/roommate/date is trustworthy.
Unfortunately, it has an interesting recursive property: if you're
resolving a dispute between two people with publicly-traded
information futures, you'd tend to believe the one with the higher
futures value. So if Bob and Alice turn in identical reports to their
Econ 101 teacher, and their teacher decides that Bob is a plagiarist
based on his contract's value of $.91 compared to Alice's value of $.
95, Bob's reputation may tick down a few basis points, which makes it
even more likely that he'll lose in future disputes. It creates an
opportunity for a speculative attack: shorting someone's futures
enough to reduce their value, then starting a dispute with them and
covering the short once the new 'fundamentals' get priced into the
market.
One solution is to have two parallel markets. One of them is a
standard, anonymous futures market, but one of them is a 'signed'
market in which the owner of the account attaches his full name to
each transaction. If there's a discrepancy between the two markets, it
could indicate a speculative attack -- on the other hand, the
anonymous market would almost certainly be more liquid.
This brings up another set of recursive event futures: futures on the
likelihood of a disruption in futures trading. For example, a futures
exchange could set up a market in which participants could bet on the
probability that the exchange would be shut down (for legal,
financial, technological, or other reasons) in a given year -- giving
the exchange an information source for areas in which they could
improve their operations (or PR). If they really consider markets
useful sources of information, shouldn't they, you know, use them more?