Byrne's Eye View

Political futures markets are most active for the mainstream candidates, but they're going to have their biggest impact on the marginal ones. In a few past elections, candidates have floundered because they weren't electable -- anyone who excited Democrats as much as Dean did, for example, was probably going to infuriate twice as many Republicans. In 2004, we had to use clumsy heuristics and biased opinion polls. In the three years since, political futures markets have emerged as a viable alternative with an interesting property: while opinion polls estimate what fraction of voters would vote for a given candidate, futures markets estimate the odds of a candidate winning -- a much more interesting and useful number.

One use I've been thinking about for the last few days is the conditional campaign donation. Usually, a campaign donation serves two purposes: emotionally, it feels good to donate to a good cause, and pragmatically, the money helps a candidate win. I can't think of a good way for political futures to juice a moral investment, but the pragmatic side shows some interesting possibilities. The return on a pragmatic investment is binary -- either your donation helps your candidate win, or your candidate loses and your return is 0. So most of the pragmatic donations go to the front-runners -- now matter how much you like Dennis Kucinich, writing him a check in the hope that he'll win the nomination is moronic.

But markets give us a way to signal support for likely winners while funding people polling in the single digits. Imagine a structured donation: a promise that, on January 1st, 2008, you give a given candidate $100 for every point above 0 at which his futures trade, up to the legal limit. So if your chosen contender's estimated odds of winning are 2%, you owe $200; if he pulls of a great pre-primary campaign and bumps his numbers up to 20%, you owe $2000.

The more robust futures market allows market actors to make more nuanced statements: instead of "I like what you say and/or want you to win," a donor can say "I want you to win, and this desire to see you win increases proportionately with your chances of actually doing so."

This doesn't just change the equation for donors: it radically affects how volunteers see the campaign. If every 1% increase in popularity pulls in another $250,000 in donations, the return on investment for a canvaser's time or a campaign volunteer's efforts soars. Suddenly, long-shot campaigns can have a built-in incentive for their volunteers -- an extra voter isn't just an extra voter, but is also a chance to trigger more funding. (It's slightly ironic that we can fulfill the Progressive dream of funding in proportion to support by turning popularity into a laissez-free-for-all).

And another thing

According to the Whorf Hypothesis, the terms we use define the ideas we're able to conceive. This applies to more abstract ideas, like this one -- there's simply more to think about when our raw materials are probabilities rather than polls. I'd hypothesize that this extends to other markets: even if you don't know why anyone would want to trade futures against a particular event, the existence of those futures will create enough innovations to make them worthwhile.

I started posting actively on reddit in late 2005. I stopped a few weeks ago. I'm know I joined a site worth joining, I know I left one worth leaving, and I bet I know why: at any time, the average person most likely to want to join a group is below that group's average at whatever the group values. For reddit, this was trivial: it was founded by smart folks and funded by more of the same, so at first reddit was a chance to look over the collective shoulder of, among others, an MIT professor (assuming that RTM is also this RTM).

So, consider reddit when the only people who know about it are people like that and their friends. Who would want to join? The current users have smart and informed peers, but those peers already know lots of smart people. The next cohort attracted to reddit is going to be, on average, a notch or two lower. They're the ones with the most to gain -- but since it's a democratic site, they also influence the content. And since there are more of them, they have a disproportionate influence.

What I've noticed recently on reddit is something slightly tragic: it's frighteningly easy for smart people to applaud some pretty dumb stuff. Most reddit users stick to the front page, and articles only reach the front page if they're frequently and rapidly voted on beforehand. In the time it takes for a few dozen compsci devotees to read this paper on the lambda calculus, how many people laughed at and voted on this? It's not that smart people don't find gags like that funny -- the problem is that those gags metabolize viewers into popularity faster, so a new user visiting the front page would consider reddit almost exclusively gag-oriented -- their next crop of users will be the type who find gags hilarious and don't especially care about more complex posts.

Reddit values interesting links, but it rewards people who can hack the interestingness test by submitting stuff that's easy to read quickly. They aren't unique: Digg is already a cesspool, and Netscape is a bad joke. But link-sharing sites aren't the only ones subject to this phenomenon. LinkedIn is one of the few career-related sites that doesn't seem like a contest of wills between users and site designers. But the most active users are trolling for new 'friends to pump up their network. Dealing with people like that is a liability -- and they're increasingly common. As on reddit, the users you'd join the site to actually network with are only there because they have a vested interest.

The sites without interesting founders and backers don't take off at all, and the rest are predestined: A social networking site will form around a kernel of interesting users -- who will almost immediately have something better to do.