Truth Markets?

I recently saw this post on the NYTimes which mentions the concept of truth markets, a variant of prediction markets. Prediction markets have been recognized by many as a way to aggregate independent information from lots of individuals and provide a signal (a price) which reflects the aggregate response. Prediction markets have been successfully applied in politics, for instance, the Iowa Electronic Markets, which lets people trade on the what they think the outcome of the next presidential election will be. Truth markets applies the concept to predicting the truth value of a claim or the trustworthiness of a claimant. I don’t know enough about economics but my intuition is that a market approach toward predicting truth would require A LOT or participation to be meaningful in any way. Indeed, a re-reading of Cass Sunstein’s Infotopia lays out some of the limitations of prediction markets: knowledge needs to be dispersed (not concentrated), a wide range of people need to have relevant facts, and people need to be able to be incentivized to reveal their information through investment.

Furthermore there’s the issue that markets aggregate information not only about facts but also about tastes. Investment markets ostensibly do not do this because the assumption is that people invest not based on their own tastes but on their desire to earn money. But in some sense, I might invest because I predict that some good is going to be popular or appeal to mass taste, and thus earn money on my investment. So in a sense, you would be aggregating predictions about what people think about other people’s tastes (including how your own factors in to that). This would only hold for a mass market good; other investments may not be susceptible to this in the same way. In terms of the application of these ideas to truth markets, the point is that there is a component to prediction markets that are based on predictions of mass taste and there is a component that is based on objective fact; the key would be to realy mitigate any subjective (taste based) component of the market so that objective facts can rule the market. This is a tall order.

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