Dollars and Jens
Monday, October 27, 2003
Market Design and the PAM
An article last week in Science News discussed the design of efficient markets, using the ill-fated Policy Analysis Market as a hook. Interestingly,
Hanson and Ledyard have come up with a new structure that, they say, performed better in studies with volunteer traders than previous designs did at squeezing the most information out of a small number of participants. The design incorporates two new elements.The thing is, if you're using the market to decide on policies, this is exactly the kind of question you need to be asking; "Are we better off doing A or B?"With the first element, called conditional bidding, participants can bet on outcomes that emerge from complicated combinations of circumstances, such as, "What are George W. Bush's chances of being reelected if Howard Dean loses the Democratic primary?"
(The other element is making sure liquidity is provided, and is hardly new in the financial world. They're called "market makers" on the Nasdaq and at ECNs, and they're called "specialists" at the NYSE.)
By the way, I occasionally include a post both here and at Jens and Frens if I think it has cross-over interest. They may be different versions, though I'll try to keep that to a minimum as I wouldn't want anyone to have to read these things twice.
