In my previous post I described how a “truth market” could be used to counteract the spread of false information on the Internet. To the point, my proposed truth market would operate like a betting market but would remain open indefinitely and would not have any final arbiters. That is, unlike a traditional prediction market, where participants trade carefully-worded “event contracts” and have to agree ahead of time to a trusted arbiter to decide whether the event being bet on has occurred or not by a specified date, my truth market would allow people to trade “belief contracts”, would eschew external arbiters, and would remain open indefinitely.

As it happens, my truth market paper underwent peer review earlier this year, and both of my reviewers objected to the open-ended nature of my market (no close date) as well as to the lack of final resolution (no arbiters). The objection boils down to this: without a final arbiter or “some trusted person” (to quote one of my reviewers) or other “disciplining function” (to quote the other) to resolve on some certain date the belief contracts being bet on, how could we determine whether the truth market was working or not, i.e. whether the price of a belief contract reflected the underlying truth or truth-value of the proposition being bet on?

In reply, I would ask: Why can’t the market as a whole be the arbiter? The whole point of a truth market is to allow people to bet on their beliefs about past events, but when those past events are contested or disputed, there is often no way of knowing with any degree of certainty what the truth is. This key epistemological observation is especially true in the realm of conspiracy theories and fake news. Was there a conspiracy to assassinate JFK? Did Jeffrey Epstein really kill himself? Did COVID-19 originate in the Wuhan Institute of Virology? Simply put: in each of these cases, no trusted person or institution is available to decide the truth of the matter in controversy.

A decentralized truth market, by contrast, would provide people with a creative way of generating new information about conspiracy theories and measuring the truth-values of such theories. Bettors who think the price of a belief contract in “Proposition X” will increase (where Prop X is the lone gunman theory, the Wuhan lab-leak theory, or any other popular conspiracy theory) will keep their existing belief contract holdings in Prop X or buy more belief contracts in Prop X. In the alternative, a bettor will sell his existing belief contracts or refuse to buy such contracts if he thinks the price will fall. Either way, with a sufficient number of bettors the market price of a belief contract will track belief or non-belief in the conspiracy theory being bet on with no necessary final resolution. As long as there is yet-to-be-discovered evidence that may be convincing to some bettors, at least some subset of belief contracts should move toward resolution without the need for a trusted arbiter.

To sum up, we don’t need trusted arbiters to tells us whether a given conspiracy theory is true or not, and in any case no such arbiters exist in the real world. But by keeping truth markets open indefinitely, the market price of any given belief contract will itself be the arbiter of the truth of Prop X! How? Because markets and prices reflect dispersed or global information and rapidly adjust to changing conditions, a fundamental observation that goes back to “The Use of Knowledge in Society” by F. A. Hayek (pictured below, left), and markets are more likely to lead to the production of new information in the first place, an idea that can be traced to Ludwig von Mises’ classic treatise Human Action.

Note: I will address an additional objection to my truth market proposal in my next post: the possibility of market manipulation or “insider trading” — either by government officials who have access to secret information or to media insiders who, in turn, have access to those officials.