Markets as Optimal Voting Systems

This article demonstrates that markets are an optimized voting system. I argue:

  1. Markets maximize corrected voter expression
  2. Markets solve Arrow’s Impossibility Theorem
  3. Further evidence economics is politics and vice versa.

To have an optimal political system we need to have an optimal voting system. Such a system will:

  1. Allow voters to precisely express their desires.
  2. Allow voters to be weighted by their quality.

Current political systems:

  1. USA: 2-party single-choice vote. Arguably the theoretically worst means of voter expression and weighting.
  2. Ranked voting allows voters to express ordinal preferences but not cardinal.
  3. Proportional methods allow voters to express cardinal preferences, but lack proper weighting.

Alternative systems:

  1. Transferable votes are a bit more expressive.
  2. Weighting by IQ would allows some distinction in the quality of voters, but it has problems such as exempting intensity of desire and grit.
  3. Weighting by payment allows integration of productivity information and expressive demand.

Alternative #3 is a market. We see that it empowers the best grassroots-level decision-contributors to “elect” the best decision makers by voting with money. This allows cardinal demand expression that contains information on intensity of desire and is corrected for the competency of the voter by means of an income constraint.

Notice that the market system overcomes Arrow’s Impossibility Theorem, which states that no voting system can obtain all of the following requirements:

  1. Pareto-efficiency
  2. Unrestricted target space
  3. Universality: It must deterministically provide the same ranking each time voters’ preferences are presented the same way
  4. Non-dictatorship. This is implicit to 2 but it is specially emphasized.
  5. Independence of irrelevant alternatives. This is a result from the combination of 2 and 3 but it is specially emphasized.

We can rephrase Arrow’s theorem as, “no voting system other than the free market can…” and we have yet another point in favor of polycentrism/anarcho-capitalism/distributed governance.

  •  
  •  
  •  
  •  
Tagged with: , , , ,
0 comments on “Markets as Optimal Voting Systems
1 Pings/Trackbacks for "Markets as Optimal Voting Systems"
  1. […] Official course notes reference. Related: My proof of markets as an optimal voting system. […]

Leave a Reply

Your email address will not be published. Required fields are marked *

*