Earlier this year I posted a short white paper on SSRN (see here) in which I proposed the creation of a “truth market” to counteract the spread of false information on the Internet, and in a previous post, I identified three potential problems with my truth market proposal based on feedback I have received from the peer-review process and from other colleagues. Today, I will address the first and most fundamental of these three objections: how would my proposed market work in practice?

Simply put, my truth market would look like an existing prediction market such as Kalshi or PredictIt (see also the infogram pictured below) but with one major modification or tweak. First off, what is a prediction market? Broadly speaking, a prediction market is a market where people can trade “event contracts” that are tied to the outcome of an unknown future event. (By way of example: “Will Donald Trump be indicted before the end of this week?“) My tweak or modification, however, is to replace prospective event contracts with retrospective belief contracts.

My proposed truth market would thus operate like an ordinary betting market — but instead of placing bets on the outcome of future events (like an upcoming football match or basketball game), participants would trade belief contracts in which people would be able to place wagers on their beliefs about past events, such as conspiracy theories, fake news, and the like. Bettors could opt out at any time, pocketing their winnings if the current price of their belief contracts are above what they paid for them or taking a loss at the current price.

The main difference between a standard prediction market and my proposed truth market is that traditional betting markets must close by a specified date. My truth market, by contrast, would remain open indefinitely and would not have any final arbiters. Both the open-ended nature of my truth market (no close date) and its lack of formal resolution (no arbiters) are the most novel and unorthodox features of my proposal — and the most criticized. I will therefore address these concerns in my next two posts.