Conditional prediction markets will be biased towards the wealthy

At least when it comes to policy

In a world where information is power and influence is shaped by the depth of one's pockets, the creation and popularization of conditional prediction markets can add a new dimension to policy decisions. These markets, in theory, would allow participants to bet on the outcomes of potential policies, giving us an accurate picture of the future which would then sway policymakers in the direction of the better policy. However, when the deck is already stacked against a majority, can these markets truly offer unbiased insight?

Scenario: The Predicament of Examplestan

Let's say the people of Examplestan have a large underclass who live paycheck to paycheck and a small upperclass who gets their money from land ownership. The government is thinking of introducing a bill that would make their tax revenue come less from paychecks and more from taxing land value. Democracy advocates want to put it to a vote, but a group of futarchy lobbyists convince the government to run a conditional prediction market instead.

The market question is "If we replace the paycheck tax with a land value tax, will welfare increase?". The large underclass has almost no money to bet that it will, while the small upperclass bets a large chunk of their money that it won't. Predictably, more money is betted on it not increasing welfare and when the market closes, everyone gets their money back and the government decides not to implement it.

Individual vs. Group Interests

Advocates of futarchy (governments relying on prediction markets) argue that these markets incentivize individuals to prioritize personal profits over class loyalties. The idea is that the allure of potential gains will entice participants to defect from their fellow wealthy and go for their own individual interests.

But is it in your individual interest? Is making enemies of your friends and family while losing a guaranteed lifelong stream of income for you and your children really worth it for the possibility of having a one time large payout?
What about with different probabilities? What if you think the policy has a 51% chance of helping the poor and a 49% chance of doing nothing. This would be a fantastic policy to try but even without coordination mechanisms like dominance assurance contracts, I doubt a self interested rich person would sacrifice their social network and lifelong stream of income for a 51% of having a one time large payout (actually less than 51% since it probably won't be implemented due to the conditional prediction market).

The Verdict: Inherent Bias Remains

While conditional prediction markets might be pitched as instruments of objectivity and unbiased policy decisions, the realities of economic disparities will undeniably influence their outcomes. When one group has an outsized influence on the market, the results are predictably skewed in their favor.

And I do mean skewed. Sometimes it’s not about policy and the rich won’t coordinate. Sometimes the outcome is too certain or the benefits to mild and they’re sufficiently tempted to defect. Sometimes the question will be asked in a way that does allow the results to be tested, and the money won’t be automatically returned because the policy was never implemented. It’s not always going to favor the wealthy, but it will be biased towards them.

Not to mention that you can create an infinite amount of conditional prediction markets. Will the poor even have the money and free time to bet on all of them?

In essence, for as long as wealth disparities exist, conditional prediction markets will remain susceptible to that bias. Until we can establish mechanisms that level the playing field, relying solely on these markets for policy decisions could perpetuate the very inequalities they seek to address.