What is futarchy?
An accessible explainer
Futarchy is a new way for groups to make decisions
Robin Hanson wanted to know: could there be a form of government that doesn't make dumb decisions?
[A]ccording to many experts in economics and development, governments often choose policies that are “inefficient” in the sense that most everyone could expect to gain from other feasible policies.Robin Hanson, “Shall We Vote on Values, But Bet on Beliefs?”
People often disagree on values. But even when they do agree, governments commonly make decisions that experts don't believe are effective.
Why not just ask experts?
- It is hard to identify experts. Systems designed to identify experts often end up identifying effective careerists instead.
- Expertise has to be actively maintained. A person who is an expert at once time may not be an expert anymore after 5 years in government.
- Once given authority, experts may choose to further their own interests instead of the interests of the public.
Even if we could identify the current experts, we could not just put them in charge. They might then do what is good for them rather than what is good for the rest of us, and soon after they came to power they would no longer be the relevant experts. Similar problems result from giving them an official advisory role.Robin Hanson, “Futarchy: Vote Values, But Bet Beliefs”
Futarchy: using markets to make policy
Step 1: Decide on an objective
The creatures of the forest decide to create an organization based on futarchy. They vote together to decide what they want to accomplish, and create a metric to measure their success. Let's say the animals vote to maximize the number of trees in the forest in 10 years.
Alternatively, the creatures of the forest might form a corporation, in which case the metric might be the share price. Or the king of the forest might decide the metric on his own.
Step 2: Collect proposals
Anyone can propose a course of action for the animals' organization. In fact, an animal doesn't even have to be a member of the organization to make a proposal. Bear proposes to create a tax credit for tree-planting.
Step 3: Create two markets
The animals are deciding whether to implement Bear's proposal. The animals create two tokens: YES and NO. The tokens are valuable because they pay out a reward: 1 dollar per tree, as measured in 10 years.
Step 4: Trade
Owl is an expert in forest ecology, and he believes that Bear's proposal will create an incentive to plant monocrops, which will reduce long-term forest health. He believes there will actually be more trees without Bear's proposal. Therefore, Owl stocks up on NO tokens, which increases their price relative to YES.
Step 5: Resolution
The price of NO is greater than the price of YES, so the proposal fails. Everyone who bought or sold YES gets their money back, but any animals who bought or sold NO keep their position.
If the price of YES had been greater than the price of NO, the reverse would have happened. Then, the animals would have carried out Bear's proposal.
Step 6: Payout
After 10 years, the number of trees in the forest are counted. All the animals with NO tokens are paid 1 dollar per tree. Since Owl was able to buy NO tokens at a low price, he makes a tidy profit.
In the real world, this is usually cost-neutral, because anyone is allowed sell NO tokens, even if they don't own any, for an immediate profit. In the end, the balances of the people with a negative number of NO tokens and those with a positive number add up to zero. The people with a negative number of NO pay those with a positive number.
How futarchy changes the decision-making process
Low Information Voters
Rabbit doesn't know how to tell which policies result in more trees. With futarchy, he can express his desire for more forest cover, and trust that the system will choose the best way to achieve it.
Policymakers
Bear is a policymaker, but she's not much for workplace politics. Now she can propose a course of action and it will be assessed on its merits.
Experts
Owl is an expert. Under futarchy, he is compensated fairly for his knowledge.
Charismatic Fools and Hucksters
Maybe Raccoon is an idiot, or maybe he's just a liar. Either way, people tend to listen to him (just look at those cute little paws). Now, if he wants to enact his agenda, he'll have to put his own money on the line. If he does, he'll quickly be bankrupt.
The Meta-DAO is the world's first practical experiment in futarchy. You can think of it as a corporation, in that it exists to maximize the value of its shares, which are denominated in the META token. But it has no executives, and no board of directors.
Like in our animal example, anyone can create proposals for The Meta-DAO. But instead of redeeming YES and NO tokens for money based on the number of trees in a forest, you redeem them for META, which also trades on the open market.
It's called Meta, because its implicit goal is to increase its own token value, and DAO, because it does this autonomously using market forces and the Solana blockchain.
The Meta-DAO is an experiment. Nobody knows whether futarchy will prove to be a failure or a great success.
Think it will succeed? You can buy the META token and just treat it like a stock.
Think it will fail? Why not short META and try to bring about its downfall? Or you could make a proposal to freeze all future proposals and wind down the DAO's assets. It's all in the spirit of futarchy.
Think it could succeed, if only... The Meta-DAO needs you!
All you need to participate in The Meta-DAO is a Solana wallet. I suggest Phantom, which is available for browsers and mobile.
