The Game
You get $5,000 in play money (like Monopoly) to trade futures contracts in worldly events. Increase the value of your knowledge portfolio to impress your peers, your friends, and that teacher who never said you'd amount to anything. If you lose it all, you lose it all. There is no "reset" button, no way to refill your play money account. The Game continues perpetually, much like... life... itself... no?
The Theory
F.A. Hayek's knowledge thesis said the knowledge necessary for rational resource allocation "never exists in concentrated or integrated form." No one has all the information in their brain needed to make a perfect decision about the future. However, the more brains you bring into the planning, the more knowledge is aggregated. This is how stock markets work. This is why decentralized economies like the United States' are more efficient than a planned economy like the former U.S.S.R.'s.
Black Magic? Or "Price Discovery?"
Markets are the most effective mechanism for assigning resources to their optimal uses. They don't rely on a single person or even a single group with "complete" information. Stock markets, aside from providing a means for companies to raise capital, have a second function - economists have shown over the last several decades that they make prices visible. This is called “price discovery” and it is proof that markets serve as a mechanism for information aggregation.
"Information" markets
National Gazette's markets are known as "information markets" or, alternatively, "prediction markets." The contracts that you can trade are based on events that may or may not occur in the future. They are considered "binary options," meaning that each contract only has two possible outcomes: "yes" or "no," which translates to $100 or $0.
History
Although information markets have been in existence for almost two decades, they gained a certain notoriety in 2003 when the Policy Analysis Market (PAM), a proposed futures exchange, was developed by the United States' Defense Advanced Research Projects Agency (DARPA). PAM was to specialize in political events in the Middle East, theoretically providing the U.S. government with a measurement of the region's political opinions that polling techniques may not have been able to extract. However, it was publicly criticized when it became known that some PAM contracts would deal in the probability of violent events such as assassinations.
How it works
Contracts are created for markets that function exactly like any other financial security - they pay the holder an amount that depends on the outcome of particular events. The price discovery effect of information markets that their 0-to-100 price is an expected probability of an outcome, reflecting information dispersed across an entire population of traders. The market prediction is not an average or median of individual opinions, but rather a complex summarization reflecting the game-theoretic interplay of traders as they obtain and leverage information, and as they react to the actions of others obtaining and leveraging their own information. In the best case scenario, the market price reflects a forecast that is a perfect Bayesian integration of all the information spread across all of the traders, properly accounting even for redundancy.
Why it matters
"For months, traders on the world’s stock and commodity exchanges have been preoccupied with one issue: war with Iraq. If you think that war will be over quickly, you buy stocks. If you believe that it will drag on, you sell them. And if you think that the Middle East will be plunged into chaos you buy gold. For speculators on the New York Merc or the International Petroleum Exchange, every trade is like a wager on what will happen, and when, to Saddam Hussein." ~ James Surowiecki, Decisions, Decisions
Current events clearly impact financial markets, but their effect on every American's decisions is just as important, if not more so. Shouldn't there be a way to measure the probability of future outcomes so we can all make better decisions, or at least better hedge the risk inherent in our decision-making?