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General Technical Approach
Technical Description of Epistocracy
Epistocracy can be thought of an extension of the governance mechanism called futarchy. Futarchy is a governance system proposed by Robin Hanson where prediction markets determine which policies are implemented. Participants bet on outcomes (e.g., "If policy A is implemented, welfare will increase by X%"), with the winning policy being the one markets predict will have the best outcome. This approach uses market incentives to aggregate information, as participants put real money at stake based on their confidence in predictions.
The problem with futarchy is that it doesn’t pay for epistemic labor: the labor of collecting information and aligning on what’s true. It’s typically assumed that markets already do a sufficiently good job of incentivizing participants to make bets based on the private information they’ve already collected. However, the shortcoming with markets is that they create a pervasive incentive for participants to withhold their private information, especially information that could yield a later advantage. The cost is that information isn’t disclosed which could have been useful for other participants to build on.
Epistocracy’s key innovation on top of traditional futarchy is through the use of disputable counterpositions. To concretely ground this, consider the following hypothetical proposal A: “Send 10 ETH to Alice to build the mobile app.” In typical futarchy, participants would place bets on this proposition and the result would merely render a YES or a NO. Let’s imagine that Bob has additional information: they know that Alice is not a developer, and that that might undermine the possible success of the project. In futarchy, Bob would need to propagate this information credibly through side-channels in an attempt to make a NO decision more likely on proposition A.
In epistocracy, the information itself becomes another side of the market; Alice not dev can be introduced as a new proposition. Increased credence in this information can then decrease the resultant implied probability of the market by acting as the counterposition to the proposal.
In other words, with this setup, the market participant finds that they have two affordances for decreasing the probability of the proposal passing. The first, as is typical, is buying NO shares in the proposal 10 ETH to Alice. Buying NO shares decreases the probability of the event passing. The second option is for the market participant to buy YES shares of Alice not dev.
To achieve this technically, we imagine initiating this design based on a typical Log Market Scoring Rule (LMSR) as would be used in an Automated Market Maker (AMM) ():
Where Y refers to the number of YES shares that have been purchased of 10 ETH to Alice, and N refers to the number of NO shares. As is typical, the price of the Y shares can be easily found by taking the derivative of the cost function. And therefore price is defined as:
To accommodate the impact of adding a market to estimate Alice not dev, we add a third share to the mix, just as we would with a categorical market; in the following, B is the number of YES shares sold in the counterposition Alice not dev:
This formulation grants one of the desired properties of epistocracy: it immediately disseminates the new information to the market price and allows participants to influence the market by divulging their private information. It does so by A) immediately moving the market price, and thereby changing the probability of the proposal passing, and B) making the reason for the market move legible to other players, while permitting dispute of the veracity of the argument e.g. by buying up shares of NO Alice not dev.
However, this formulation has two flaws: (1) it does not distinguish between (YES Alice not dev) and (NO 10 ETH to Alice); (2) it does not differentiate between a relevant counterposition like “Alice not dev” and an irrelevant counterposition like “Alice has a cat”. To address both, we weight the counterparty shares B with a parameter q, which affords control over the degree to which the B shares should have an effect on the cost (and therefore price) of Y:
A large value of q indicates that counterposition B is highly relevant to the price of Y; however, if q is close to 0, this means that B has almost no relevance to the price of Y. Thus, a central goal of epistocracy is to ensure that q itself becomes a disputable parameter.
This project’s central challenge is to identify market mechanisms which incentivize discovery for a parameter q for each pair of epistocratic propositions. We call such a mechanism a Carroll mechanism, and here briefly discuss the key issues involved in designing such a mechanism.
To see our in-public research progress
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