Summary
Epistemic status: quite confident.
Futarchy is bound to fail because conditional decision markets are structurally incapable of estimating causal policy effects once their outputs are acted upon. Traders must price contracts based on welfare conditional on approval, not welfare caused by approval. As a result, decision markets systematically reward traders for exploiting non-causal correlations between policy adoption and latent welfare fundamentals. We can expect futarchy markets to endogenously generate such correlations. Policies that signal strong fundamentals are favored even if causally harmful, while policies that signal weakness are disfavored even if causally beneficial. This effect persists under full rationality, common knowledge, and perfect supporting institutions (welfare metric, courts, legislatures, etc.).
This bias is worst... (read 3522 more words →)
It can be dangerous at the symbolic level, in that political legitimacy needs to pretend to rest on something even if it is in practice circular. This is an is-ought gap problem: the government is legitimate because you obey the government without resistance (descriptive), and you obey the government without resistance because it is legitimate (normative). This second part is, yes, dependent on what one thinks about what makes the government legitimate. Embracing the circularity is unstable. A totalitarian state and a democracy would both be legitimate as long as people don't protest. But what if people do protest? You need an idea that will pull citizens to obey the government by... (read more)