Promote Progess of Science and Useful Arts: Scientific Prediction Exchange

[Seth Johnson <seth.johnson@RealMeasures.dyndns.org>]

> http://agoraphilia.blogspot.com/2006/08/prediction-markets-whup-on-copyrights.html


Prediction Markets Whup on Copyrights and Patents

posted 8:04 PM by Tom W. Bell


Tuesday, August 29, 2006


I've just posted to SSRN my forthcoming paper, "Prediction
Markets for Promoting the Progress of Sciences and the Useful
Arts." It will appear in vol. 14 of the George Mason Law Review.
You can download a pretty-to-close-to-final draft at here. The
abstract:

    Copyrights and patents promote only superficial progress in 
    the sciences and useful arts. Copyright law primarily 
    encourages entertaining works, whereas patent law mainly 
    inspires marginal improvements in mature technologies. 
    Neither form of intellectual property does much to encourage 
    basic research and development. Essential progress suffers.

    Prediction markets offer another way to promote the sciences 
    and useful arts. In general, prediction markets support 
    transactions in claims about unresolved questions of fact. A 
    prediction market specifically designed to promote progress 
    in the sciences and useful arts - call it a scientific 
    prediction exchange or SPEx - would support transactions in a 
    variety of prediction certificates, each one of which 
    promises to pay its bearer in the event that an associated 
    claim about science, technology, or public policy comes true. 
    Like other, similar markets in information, a scientific 
    prediction exchange would aggregate, measure, and share the 
    opinions of people paid to find the truth.

    Because it would reward accurate answers to factual 
    questions, a SPEx would encourage essential discoveries about 
    the sciences and useful arts. Researchers and developers in 
    those fields could count on the exchange to turn their 
    insights into profit. In contrast to copyrights or patents, 
    therefore, a SPEx would target fundamental progress. 
    Furthermore, and in contrast to copyrights and patents, the 
    exchange would not impose deadweight social costs by legally 
    restricting access to public goods. To the contrary, a 
    scientific prediction exchange would generate a significant 
    positive externality: Claim prices that quantify the current 
    consensus about vital controversies.

    This article measures copyright and patent law against the 
    Constitution's call for promotion of the Progress of science 
    and useful Arts, to find those traditional forms of 
    intellectual property lacking. As a cure for that policy 
    failure, it suggests scientific prediction exchanges. Given 
    that such exchanges offer the promise of large net public and 
    private benefits, why don't they already thrive in the United 
    States? Because the laws written for commodity futures, 
    securities, and gambling markets cast a pall of legal 
    uncertainty over scientific prediction exchanges. To ease 
    that unwarranted burden, the article explores a variety of 
    strategies designed to guarantee the legality of scientific 
    prediction exchanges. The article concludes with an all-too-
    apt illustration of how legal risks can discourage prediction 
    markets from promoting the progress of science and the useful 
    arts.