Friday, November 12, 2010
In this commentary on an article by Henderson, Wolfers, and Zitzewitz, proposing the use of open markets for the prediction of crime, I explore a few implications stemming from one fact. The prediction market concept — an effort to coordinate decentralized sources of information — would operate in an exceptionally decentralized world of users, a world where the institutional users of crime predictions are fragmented among many different locations and levels of government.
The social response to crime in the United States today still remains quite decentralized. Fragmented local institutions, especially police departments and prosecutors’ offices, would find it difficult to use crime prediction markets. Henderson, Wolfers, and Zitzewitz have envisioned the sellers in their markets more carefully than the buyers of predictions. The majority of the potential users operate in fragmented local institutions, surrounded by thin markets that are not likely to generate reliable predictions. A smaller number of purchasers, such as state-level correctional authorities, would use markets to overcome the greatest information challenge at the higher level: coordinating input from many incompatible sources. I close by noting that a few actors at the local level — in particular, sentencing judges — combine features of fragmented and centralized users. The ability of local actors to use far-flung crime data poses the question of whether markets at the case level would be either appealing or possible.