CHAPTER FOUR
Unleashing Prediction Markets
POLITICAL PREDICTION MARKETS—markets that allow the public to speculate on election and policy outcomes—have the potential to improve the capacity of democracy to update on the facts in our day, just as the rise of the press improved its capacity in an earlier era.1 These markets can elicit information about the likely effects of policies even before they are implemented from those who are most knowledgeable about their effects.
Prediction markets temper three of the largest problems of politics. First, they offer a mechanism for overcoming what has been called the “basic public action problem” of collective decision making—the difficulty of persuading individual citizens to provide information that ...
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