Futarchy holds great promise for dealing with all the morass of poor decision making in our governments and corporations. For those who haven't heard of it, the main concept is to use betting markets, where people place bets on the expected outcome of a policy, and the decision-makers choose the policy that the market decrees is most likely to achieve their desired outcomes. Robin Hanson summarises it as "Vote Values, But Bet Beliefs".

The approach, however, could lead to problems in a large financial crisis. When a large financial bubble bursts, many things change: liquidity, risk aversion, volatility, the competence of the average investor. If the betting markets are integrated into the general market (which they would be), then they would be affected in the same way. So at precisely the moment when decision makers need the best results, their main tools would be going haywire.

This would be even worse if they'd been depending on the betting markets for their decisions, operating merely as overseers. At that point, they may have lost the ability to make effective decision entirely.

Since isolating the betting markets from the swings of the rest of the market is unrealistic/impossible/stupid, we should aim for a mixed governance model - one where betting markets play an integral part, but where the deciders still have experience making their own decisions and overriding the betting markets with some regularity.

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