I recently proposed the creation of a “truth market” to allow people to buy and sell “belief contracts“; i.e. to place bets on conspiracy theories and fake news. One practical problem a new market must overcome, however, is “transaction costs” or liquidity, i.e. how easy or difficult is it to make trades on that market? (See here or the chart below.) At a minimum, a market must have a sufficient number of willing buyers and sellers in order to work properly. Why? Because without enough traders, the prices of the assets being traded on the market won’t reflect the underlying value of those assets.

So, how could we increase the liquidity of my proposed truth market That is, how could we attract a sufficient number of people to participate in the market? Here, I will offer two possible methods for generating truth market liquidity. One is to simply extend the purview of an existing prediction market like Kalshi or PredictIt. Although my proposed truth market would involve “retrodiction” as opposed to prediction, there is no reason in principle why we couldn’t extend the scope of an existing prediction market to include conspiracy theories and fake news.

The other possible solution is pay-to-play: just pay people to participate on the truth market. Specifically, a pro-market charitable organization, such as the Charles Koch Foundation or a think tank like the Mercatus Center, might consider putting skin in the game by creating and subsidizing its own truth market. To attract bettors, instead of funding yet another ad hoc study or wasteful conference on fake news, democracy, and social media, etc., the sponsor organization could allocate a fixed number of fully-transferable cash-value tokens to people in exchange for participating in the market. Market participants could include students, academics, pundits, and members of the public–people from all walks of life. The more the merrier!

Whichever method is tested (why not try both?), another serious problem that my proposed truth market would have to overcome is what I call the “Keynesian beauty contest” objection. To the point: What guarantee do we have that the price of any given belief contract on my truth market will eventually converge on the truth value of the conspiracy theory or fake news story being bet on? I will address this objection in my next post.