My futarchy paper, Shall We Vote on Values But Bet on Beliefs?, made public in 2000 but officially “published” in 2013, has gotten more attention lately as some folks talk about using it to govern blockchain organizations. In particular, Ralph Merkle (co-inventor of public key cryptography) has a recent paper on using futarchy within “Decentralized Autonomous Organizations.”

I tried to design my proposal carefully to avoid many potential problems. But Merkle seems to have thrown many of my cautions to the wind. So let me explain my concerns with his variations.

First, I had conservatively left existing institutions intact for Vote on Values; we’d elect representatives to oversee the definition and measurement of a value metric. Merkle instead has each citizen each year report a number in [0,1] saying how well their life has gone that year:

Annually, all citizens are asked to rank the year just passed between 0 and 1 (inclusive). .. it is intended to provide information about one person’s state of satisfaction with the year that has just passed. .. Summed over all citizens and divided by the number of citizens, this gives us an annual numerical metric between 0 and 1 inclusive. .. An appropriately weighted sum of annual collective welfares, also extending indefinitely into the future, would then give us a “democratic collective welfare” metric. .. adopting a discount rate seems like at least a plausible heuristic. .. To treat their death: .. ask the person who died .. ask before they die. .. [this] eliminates the need to evaluate issues and candidates. The individual citizen is called upon only to determine whether the year has been good or bad for themselves. .. We’ve solved .. the need to wade through deceptive misinformation.

Yes, it could be easy to decide how your last year has gone, even if it is harder to put that on a scale from worst to best possible. But reporting that number is not your best move here! Your optimal strategy here is almost surely “bang-bang”, i.e., reporting either 0 or 1. And you’ll probably want to usually give the same consistent answer year after year. So this is basically a vote, except on “was this last year a good or a bad year?”, which in practice becomes a vote on “has my life been good or bad over the last decades.” Each voter must pick a threshold where they switch their vote from good to bad, a big binary choice that seems ripe for strong emotional distortions. That might work, but it is pretty far from what voters have done before, so a lot of voter learning is needed.

I’m much more comfortable with futarchy that uses value metrics tied to the reason an organization exists. Such as using the market price of investment to manage an investment, attendance to manage a conference, or people helped (& how much) to manage a charity.

If there are too many bills on the table at anyone one time for speculators to consider, many bad ones can slip through and have effects before bills to reverse them can be proposed and adopted. So I suggested starting with a high bar for bills, but allowing new bills to lower the bar. Merkle instead starts with a very low bar that could be raised, and I worry about all the crazy bills that might pass before the bar rises:

Initially, anyone can propose a bill. It can be submitted at any time. .. At any time, anyone can propose a new method of adopting a bill. It is evaluated and put into effect using the existing methods. .. Suppose we decided that it would improve the stability of the system if all bills had a mandatory minimum consideration period of three months before they could be adopted. Then we would pass a bill modifying the DAO to include this provision.

I worried that the basic betting process could bias the basic rules, so I set basic voting and process rules off limits from bet changes, and set an independent judiciary to judge if rules are followed. Merkle instead allows this basic bet process to change all the rules, and all the judges, which seems to me to risk self-supporting rule changes:

How the survey is conducted, and what instructions are provided, and the surrounding publicity and environment, will all have a great impact on the answer. .. The integrity of the annual polls would be protected only if, as a consequence, it threatened the lives or the well-being of the citizens. .. The simplest approach would be to appoint, as President, that person the prediction market said had the highest positive impact on the collective welfare if appointed as President. .. Similar methods could be adopted to appoint the members of the Supreme Court.

Finally, I said explicitly that when the value formula changes then all the previous definitions must continue to be calculated to pay off past bets. It isn’t clear to me that Merkle adopts this, or if he allows the bet process to change value definitions, which also seems to me to risk self-supporting changes:

We leave the policy with respect to new members, and to births, to our prediction market. .. difficult to see how we could justify refusing to adopt a policy that accepts some person, or a new born child, as a member, if the prediction market says the collective welfare of existing members will be improved by adopting such a policy. .. Of greater concern are changes to the Democratic Collective Welfare metric. Yet even here, if the conclusion reached by the prediction market is that some modification of the metric will better maximize the original metric, then it is difficult to make a case that such a change should be banned.

I’m happy to see the new interest in futarchy, but I’m also worried that sloppy design may cause failures that are blamed on the overall concept instead of on implementation details. As recently happened to the DAO concept.