The assurance contract’s strength is also it’s greatest weakness. Because its only valuable based on a majority of other people’s actions, the most likely outcome is that you spent time (and possibly, the opportunity cost of escrowed money) on something that doesn’t work out. The more contracts there are competing for time and money, the more significant this problem.
The second biggest issue with dominance assurance contracts is people needing to know about the contract, and spend time understanding it. This means there’s a significant marketing cost to successful dominant assurance contracts. I would wager that if you mapped out spend vs. success on real life dominant assurance contracts like petitions and indiegogo campaigns (and scaled by the amount of money/signatures needed) you’d basically see a linear relationship between spend and success.
I think these two points together make dominant assurance contracts less attractive for many use cases than a naive analysis would suggest.
The first point you make doesn’t apply to dominant assurance contracts, which pay signers in the case where not enough people sign. I don’t know of any real-world instance of dominant assurance contracts being used, but boy do they seem like they would be super effective. Imagine during the 2016 election: “Sign this petition if you want Michelle Obama to be president! If at least 100million people sign, you promise to vote for her. Otherwise, you’ll get a $1 gift card to Target.” Note that even in the unlikely event that this gets 99 million signatures, it would cost the organizer an order of magnitude less than Clinton spent on her campaign. More likely it would either get ~5 million signatures (because Michelle just isn’t as popular as the organizer thought) or >100million.
Petitions and indiegogo campaigns aren’t dominant assurance contracts as far as I know. I agree that there is a cost to get people to understand them, but that’s true for all sorts of complicated financial instruments like mortgages which we have no problem with.
“Sign this petition if you want Michelle Obama to be president! If at least 100million people sign, you promise to vote for her. Otherwise, you’ll get a $1 gift card to Target.”
How would that promise be enforced?
If me and my friends didn’t want Michelle Obama to be President, wouldn’t it be smart of us to all sign up and take money from an Obama supporter and then vote for who we really want?
Oh right, I forgot, the $1 incentive gives people an ulterior motive for signing. :/ OK, so this is part of the answer to my original question—I had not noticed that fact and thus overestimated their usefulness.
I think you misunderstood my second point. Although there is a cost to complexity for ever dominant assurant contract, I was talking about the cost for each individual contract to get people to know about it.
Re point #1, isn’t this just moving the cost of failure from the individual to the person sponsoring the contract? It feels like a similar issue.
Edit: Actually, it seems like game theoretically point #1 does seem a bit different with this setup. I’ll have to think about it some more.
But that doesn’t seem like a big cost to me. It seems that other methods of solving coordination problems have similarly high or even higher costs—e.g. campaign to raise awareness to get people to vote for legislation to solve the problem… Think of how many petitions there are on Change.org and how many signatures they regularly get. Now imagine that you got paid $1 on average for each one that you signed. People would be making shittons of money just by logging into change.org and browsing through proposals. Until, that is, a large portion of the population starts regularly doing this… then the money flow shrinks but change starts happening!
Yes it’s moving the cost of failure to the person sponsoring the contract, but I think for many of these problems there should be people with enough money and altruism willing to take the risk. E.g. political campaigns regularly spend comparable sums. And like you perhaps hint at with the game theory point, it’s different when the risk is all on one person—because it means we can be much more confident that the contract will trigger, conditional on someone taking the risk to fund it, and thus the risk is actually much smaller.
A couple thoughts:
The assurance contract’s strength is also it’s greatest weakness. Because its only valuable based on a majority of other people’s actions, the most likely outcome is that you spent time (and possibly, the opportunity cost of escrowed money) on something that doesn’t work out. The more contracts there are competing for time and money, the more significant this problem.
The second biggest issue with dominance assurance contracts is people needing to know about the contract, and spend time understanding it. This means there’s a significant marketing cost to successful dominant assurance contracts. I would wager that if you mapped out spend vs. success on real life dominant assurance contracts like petitions and indiegogo campaigns (and scaled by the amount of money/signatures needed) you’d basically see a linear relationship between spend and success.
I think these two points together make dominant assurance contracts less attractive for many use cases than a naive analysis would suggest.
The first point you make doesn’t apply to dominant assurance contracts, which pay signers in the case where not enough people sign. I don’t know of any real-world instance of dominant assurance contracts being used, but boy do they seem like they would be super effective. Imagine during the 2016 election: “Sign this petition if you want Michelle Obama to be president! If at least 100million people sign, you promise to vote for her. Otherwise, you’ll get a $1 gift card to Target.” Note that even in the unlikely event that this gets 99 million signatures, it would cost the organizer an order of magnitude less than Clinton spent on her campaign. More likely it would either get ~5 million signatures (because Michelle just isn’t as popular as the organizer thought) or >100million.
Petitions and indiegogo campaigns aren’t dominant assurance contracts as far as I know. I agree that there is a cost to get people to understand them, but that’s true for all sorts of complicated financial instruments like mortgages which we have no problem with.
“Sign this petition if you want Michelle Obama to be president! If at least 100million people sign, you promise to vote for her. Otherwise, you’ll get a $1 gift card to Target.”
How would that promise be enforced?
If me and my friends didn’t want Michelle Obama to be President, wouldn’t it be smart of us to all sign up and take money from an Obama supporter and then vote for who we really want?
Oh right, I forgot, the $1 incentive gives people an ulterior motive for signing. :/ OK, so this is part of the answer to my original question—I had not noticed that fact and thus overestimated their usefulness.
I think you misunderstood my second point. Although there is a cost to complexity for ever dominant assurant contract, I was talking about the cost for each individual contract to get people to know about it.
Re point #1, isn’t this just moving the cost of failure from the individual to the person sponsoring the contract? It feels like a similar issue.
Edit: Actually, it seems like game theoretically point #1 does seem a bit different with this setup. I’ll have to think about it some more.
But that doesn’t seem like a big cost to me. It seems that other methods of solving coordination problems have similarly high or even higher costs—e.g. campaign to raise awareness to get people to vote for legislation to solve the problem… Think of how many petitions there are on Change.org and how many signatures they regularly get. Now imagine that you got paid $1 on average for each one that you signed. People would be making shittons of money just by logging into change.org and browsing through proposals. Until, that is, a large portion of the population starts regularly doing this… then the money flow shrinks but change starts happening!
Yes it’s moving the cost of failure to the person sponsoring the contract, but I think for many of these problems there should be people with enough money and altruism willing to take the risk. E.g. political campaigns regularly spend comparable sums. And like you perhaps hint at with the game theory point, it’s different when the risk is all on one person—because it means we can be much more confident that the contract will trigger, conditional on someone taking the risk to fund it, and thus the risk is actually much smaller.