Futarchy: Could This Radical Governance System Solve The Big Questions?

Chronicles of the Future Special Edition

I want to do something a little different this week. Rather than explore developments in AI, climate change and demographics, I’m going to devote a whole blog to an increasingly popular governance system that claims to have the answers to all three.

Let me introduce you to Futarchy. First conceptualised in 2007 by economist and futurist Robin Hanson (whose apocalyptic views on fertility I’ve discussed before), Futarchy is a system of governance where “we would vote on values, but bet on beliefs.”

In other words, citizens would vote on the government’s objectives (be that annual GDP growth of 3%, achieving net zero by 2050, or a combination of any other goals), and betting markets would decide how that objective is achieved. The policies that the market considers the most likely to succeed are adopted, and then elected representatives and officials enact it.

Here’s how the financials would work. The state would create a market to achieve an objective decided by voters. Individuals submit policy proposals, and then participants in the market bet on whether they think policies will achieve the objective or not. If the market believes a policy has a 70% probability of achieving the objective, it will trade at £0.7. If you think the policy actually has a 90% probability of working, then making the bet makes sense. If you think the odds are 50%, you should bet against it. If the policy achieves the objective, those who betted against it pay those who betted for it.

The main benefit of futarchy, and betting markets in general, is that it utilises the ‘wisdom of crowds’ who all have skin in the game. In other words, all available information is priced into the system, including the views of experts. As Hanson highlights, betting markets consistently outperform all other prediction mechanisms, seen recently in the US presidential election. And perhaps devolving some of the decision making away from ill-informed voters is sensible. As Churchill supposedly said: “The best argument against democracy is a five-minute conversation with the average voter.”

But such a radical system would not be without drawbacks. What if inadequate information isn’t the reason democracy fails, but rather poor coordination and commitment are to blame? How could futarchy ever be accessible to the masses, both in terms of money (most people wouldn’t have enough to spend on bets), and understanding (if an oft-winning argument against proportionally representative voting systems is that they’re too complicated, imagine expecting the average voter to short a policy proposal)?

Then there’s the issue of market manipulation and misaligned objectives. What if very rich individuals, companies or even foreign states decided to lose a lot of money to guarantee certain policies are adopted? This kind of problem would be particularly pronounced if the betting market has limited liquidity (i.e. if few people are betting, you could influence the market with a relatively small sum). Scarier still, what if the best policy to achieve voters’ chosen objective is catastrophic (i.e. kill all humans to achieve net zero, akin to the paperclip maximiser thought experiment), and betting markets show no mercy in carrying it out?

Now, there are counterarguments to these points, some of which Hanson puts forward. For instance, it can’t realistically be said that voters understand policy detail in our current system. Perhaps, then, it doesn’t matter that most will be frozen out of the policy decision-making process (either through lack of funds or comprehension). And existing betting markets have been astoundingly accurate. Despite accusations that Polymarket’s US election predictor betting market was being manipulated by a mixture of malign forces and dumb, rich kids, it still ended up being more accurate than the polls. And on existential risk, if the policy destroys humanity, the bet won’t pay out (this last one is Hanson’s argument, and I think it’s flawed, for example, policies could be disastrous without being existential).

By this point, I’m presuming most of you are unconvinced. Sure, you can theoretically see pros and cons (and I’d be particularly interested in the Left’s response to futarchy, which I imagine would be conflicted. On the one hand, the whole thing is based on money (evil). On the other, they’ve lost ground since 2016 due to “low information [Trump/Brexit] voters”), but overall, futarchy just seems too extreme. A libertarian’s wet dream; not a way to run a serious country.

Why revisit a nearly 20-year-old fringe governance system? Because it might soon become reality.

Futarchy has taken an odd route to prominence. It immediately generated interest in the late noughties. The New York Times published a long-read on the idea and later named it as one of the ‘buzzwords’ of 2008. And the World Bank published a blog on the subject, quoting a McKinsey report titled ‘The Promise of Prediction Markets’: “I wouldn’t be surprised to see prediction markets used in many more companies than today, not least as a tool to forecast sales. Consumer-facing companies should be particularly interested.” But despite the hype, futarchy didn’t take hold.

The advent of blockchain and crypto offered new hope. Vitalik Buterin, creator of the Ethereum cryptocurrency, wrote a blog in 2014 about how blockchain’s decentralised, transparent and tamper-resistant technology well suited to Hanson’s system. Some crypto developers followed Buterin’s lead by creating Gnosis, a prediction market based on Ethereum, and later brought Hanson in as an adviser. Again, however, it didn’t go anywhere, with Gnosis winding up its prediction market functions in 2017 (despite the Tony Blair Institute later writing a strangely positive report about its potential in 2022).

Then, last year, a platform called Meta DAO launched (DAOs are a blockchain-based governance system, where power is decentralised to token holders), similar to Gnosis. The markets that have been created were moderately liquid (the most recent one had $200,000 total trading volume), but definitely not enough to avoid manipulation. And only 44 markets have ever been made.

But Polymarket’s success and Trump’s victory have added huge confidence to believers in futarchy’s crypto future. In August, Hanson wrote a blog commenting on the growing popularity of futarchy in the crypto community while also highlighting the importance of markets working properly, suggesting a few solutions. Two weeks ago, he gave a presentation where he revealed that he’s now Chief Scientist at a new organisation called Futarchy.fi which has the slogan “Markets know better than experts. It’s time we let them decide.” Even Buterin is back involved.

Futarchy has been embraced by the crypto community – with Hanson’s full support – who see it as a way of governing the alternative, libertarian structures they desire. This broader crypto project has been articulated most clearly by Balaji Srinivasan in his book The Network State. In a (rather long) sentence, Srinivasan describes a network state as:

“A network state is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population, income, and real estate footprint to attain a measure of diplomatic recognition.”

If you want to learn more, I’d suggest reading this chapter of the book.

The closest a network state has come to being trialled is the ‘Praxis Community’. Conceived by Dryden Brown, the project, based on “hero futurism” and a “neo-Gilded Age kind of aesthetic”, has raised nearly $20m and intends to buy land to set up the nation “somewhere in the Mediterranean.” As the New York Times has reported, Brown is “big on promises but light on specifics.” Futarchy-style, I’d bet money on it never happening.

But that doesn’t deny the momentum this movement has. Uninterested in either reform or revolution – it just wants to build something new, something separate. It’s backers are wealthy, capable and increasingly influential. Even Trump has said he wants to create something (kind of) similar to a network state in Nevada. An unusual culture, gestated on the West Coast, could soon be making waves much further afield.

So, what does it mean for the three areas this blog is dedicated to – AI, climate change and demographics?

Firstly, it seems increasingly likely that nation states and supranational organisations will struggle to slow or control AI development, as this accelerationist culture could resist regulation by creating new jurisdictions outside of it. That could put existing governments on a collision course with new structures – a war of slow versus fast.

Secondly, the communities that adopt futarchy will likely favour a ‘bright green’ approach to environmentalism, believing that technology can create sustainable energy abundance. Perhaps that’s true, but a separatist approach to climate change is misguided, as long as these communities live on Earth. Our planet is one closed system, and we need a coordinated approach.

Thirdly, as I covered earlier this month, natalists Simone and Malcolm Collins are trying to found a natalist colony, with The Guardian leaking a slide deck showing they intend for it to be run off blockchain. Although the Collinses aren’t intending to use futarchy in their community, and indeed have written an entire book on governance, there’s a chance their more extreme end of natalism gets pulled into futarchy’s orbit through its association with this separatist culture.

Lastly, a word of warning to libertarians inspired by this: be careful what you wish for. Once you hand over control to the market in a formal governance system, it will be difficult to get it back. The Ayn Rand stories so many admire are just that – stories. What will they do if the market decides that the way to achieve their chosen objectives is interventionism? What if the market takes away their rights?

It may be that this crackpot system never comes to pass, but it’s notable that the most interesting and influential ideas in AI, climate change and demographics are all coming from the same Silicon Valley-based culture that it is increasingly swinging behind it. I think that means Hanson’s futarchy matters.

I’ll leave you with the words of the economist Bryan Caplan:

“When the typical economist tells me about his latest research, my standard reaction is 'Eh, maybe.' Then I forget about it. When Robin Hanson tells me about his latest research, my standard reaction is 'No way! Impossible!' Then I think about it for years.”