2008 08 18 Telegraph: Parsons: Predicting the future - with the power of betting (2)...

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This idea of using markets to shape foreign policy may sound unorthodox. But Professor Robin Hanson, an economist at George Mason University in Virginia, has an even more radical suggestion: he's put forward an entire system of government based on the predictions of betting markets. He calls the idea a "futarchy": voters get to invest in key policy decisions, and only the policies that end up with the highest share of the market become law. Elected representatives would continue to define and manage national welfare, but their policy decisions would be made by market speculators. "In futarchy, democracy would continue to say what we want, but betting markets would now say how to get it," explains Professor Hanson. He believes solid policy-making would be guaranteed, as only voters with a sufficiently informed opinion would put their money where their mouth was. "Those who know they are not relevant experts shut up," he says. "And those who do not know this eventually lose their money and then shut up." Investors would bet on whether particular policies would raise or lower the country's overall wellbeing. Hanson suggests that a good measure of this, by which the bets could later be settled, might be a country's gross domestic product. "People in high-GDP nations tend to be richer and better off than those in low-GDP nations," he says. So only those policies predicted to maximise GDP would be implemented. "With the full attention of our elected representatives, we should be able to do even better, for example by including happiness, inequality, health, leisure, and environmental measures."