Currently writing a long(er) article on types of mechanism design, use, considerations and case studies. Just so happened to attend hosted an event on governance and voting, which is paramount in the case of mechanism design.
If you want an easier read, check out the simpler piece I wrote on Medium. (Difference: more “human” explanation for the academic papers.)
More articles in Mechanism Design series:
Governance Protocol & Voting
Government/politics aside, voting itself is inherently flawed when we add in the irrationality of human beings and the short-term focus as individuals. This is why we need robust governance models to achieve efficiency in the system. In mechanism design, voting is a very crucial slice of pie that people seem to take lightly.
Sure, with everyone given a voice to vote on an issue, we can reach the democracy that the Greeks dreamt about years ago. But with a voice per vote, it comes with a lot of other complications.
Namely proper incentives by the system, punishments or de-incentives for bribery/vote buying, impact of repeated voting on the outcome of votes, rationality of voters, externalities like social contract that can impact the short-term outcomes.
My favourite piece on voting: The Ethics and Rationality of Voting.
This is a post on the issues/challenges regarding voting, what is the current development & what further research is NEEDED in the space.
Note: voting is a general term. Depending on the topics like voting for president to voting for “what’s for lunch tomorrow”, the mechanisms are different, and so are the incentives.
Issues/Challenges Regarding Voting
- 1 vote on Yes/No is not an accurate measure of people’s preferences. Polarised views and extreme preferences are not taken into account and this could affect results.
- Quality of decentralised/crowd-sourced votes because of issues like misalignment of incentives, voters are not experts on the issue and voters are more short-term focused compared to the change-makers (i.e. relationships between citizens and government, customers and business owners).
- Centralised entities now to give up their power. There is no incentives for them to adopt the new decentralised system. (Let’s face it, humans love power.)
- Large scale voting where everyone needs to vote is a repeated game. With repeated games, it is important to look beyond the single transaction and consider the long-term incentives for this ongoing social interaction.
- Incentives or mechanisms that teases out the socially optimal choices instead of individual gains. (Think Vickrey-Clarke-Groves auction but for voting.)
- Our current system does not align to transparency and accountability (I mean , look at Trump), and changing the fundamental values of the society/system is a big step.
- When we look into decentralisation, we are also distributing responsibility to every node in the network. This means people have to be more accountable for their actions and baggage that comes with the decision. There also needs to be a focus on education and learning how this new system works. Now, THAT’s a huge challenge.
In Business Language
Plenty of issues with voting, like bribery (I pay you £X and you vote for Option 1) and inefficiencies.
Also, there will be a shift in people as we move to a decentralised system with power and responsibility more evenly distributed.
I include the papers and their abstract.
- Quadratic Voting: We argue that quadratic pricing of votes on collective decisions is analogous to linear pricing of private goods and thus solves the tyranny of majority created by the one-person-one- vote rule. To do so we propose a solution concept for costly voting models where individuals take the price of influence in units of votes as given. Under this concept, quadratic pricing of votes is the only rule that is always efficient. We then show that all type-symmetric Bayes Nash equilibria of an independent private values Quadratic Voting game converge to this efficient price-taking outcome as the population size grows large, with inefficiency generically decaying as 1/N. We discuss the robustness of these conclusions and their implications for market and mechanism design.
Liberation Through Radical Decentralization: Ethereum is working with Quadratic Voting to address some issues. (E.g. gauge community sentiment on changing protocols.) But there are issues like anonymity and pseudonymity in the crypto-space. Issue of reestablishing monopolies may arise.
Quadratic Vote Buying, Square Root Voting, and Corporate Governance: example of how Quadratic Buying is applied to corporate governance. In this case, they created a simpler model, Square Root Voting (SRV) for corporate governance. This method should also give shareholders a stronger incentive to monitor corporations and give corporations a stronger incentive to hold votes than they have under the existing system. This system also protects minority shareholders directly by making the voting rule resilient against abuse and manipulation.
How Mechanism Design Can Radicalize Democracy (Quadratic Vote Buying): Can mechanism design save democracy? We propose a simple design that offers a chance: individuals pay for as many votes as they wish using a number of “voice credits” quadratic in the votes they buy. Only quadratic cost induces marginal costs linear in votes purchased and thus welfare optimality if individuals’ valuation of votes is proportional to their value of changing the outcome. A variety of analysis and evidence suggests that this still-nascent mechanism has significant promise to robustly correct the failure of existing democracies to incorporate intensity of preference and knowledge.
Quadratic Voting as Efficient Corporate Governance (Minority shareholders): Shareholder voting is a weak and much-criticized mechanism for controlling managerial opportunism. Among other problems, shareholders are often too uninformed to vote wisely, and majority and supermajority rule permits large shareholders to exploit small shareholders. We propose a new voting system called Quadratic Voting (QV), according to which shareholders are not given voting rights but may purchase votes, with the price of votes being a quadratic function of the number of votes purchased. QV ensures that voting outcomes are efficient under reasonable conditions. We argue that corporations should implement QV, or a simple approximation called square-root voting, and that the law permits them to do so. Certain legal protections for shareholders, such as the appraisal remedy and poison pill, are unnecessary if QV is implemented.
Research on voting by E. Glen Weyl: More work done by E. Glen Weyl including pricing theory, economics of labour market and more.
DFinity, Tezos, Futarchy, Quadratic Voting — Solutions to the Blockchain Governance Problem?: How different blockchain platforms use on-chain governance (mechanism design)
- Why blockchain is on a trajectory to exacerbate inequality and fail at improving the world
- Why property should be seen as a monopolistic institution
- How property rights create inefficient markets
- The radical idea of transforming property rights via a Common Ownership Self-Assessed Tax (COST)
- How the one-person-one-vote system contributed to the crisis of democracy
- How quadratic voting works and leads to fairer outcomes
- Whether or not buying of votes should be allowed in QV
- His work with Vitalik and radical markets experiments in blockchain
- Decentralized Voting: A Self-tallying Voting System Using a Smart Contract on the Ethereum Blockchain: Electronic online voting has been piloted in various countries in the recent past. These experiments show that further research is required, to improve the security guarantees of such systems, in terms of vote confidentiality and integrity and validity verification. In this paper we argue that blockchain technology, combined with modern cryptography can provide the transparency, integrity and confidentiality required from reliable online voting. Furthermore, we present a decentralized online voting system implemented as a smart contract on the Ethereum blockchain. The system has no hardwired restrictions on possible vote assignments to candidates, protects voter confidentiality by using a homomorphic encryption system and stores proofs for each element of a vote.
PeerVote: A Decentralized Voting Mechanism for P2P Collaboration Systems: This paper proposes the fully decentralized voting mechanism PeerVote, which enables users to vote on modifications in articles in a P2P collaboration system. Simulations and experiments show the scalability and robustness of PeerVote, even in the presence of malicious peers.
Continuity and Incentive Compatibility in Cardinal Voting Mechanisms: We show that every cardinal incentive compatible voting mechanism satisfying a continuity condition, must be ordinal.
Robustly Coalition-Proof Incentive Mechanisms for Public Good Provision are Voting Mechanisms and Vice Versa: We study the relation between mechanism design and voting in public-good provision. If incentive mechanisms must satisfy conditions of robust coalition-proofness as well as robust incentive compatibility, the participants’ contributions to public-good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another. For a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold. With more provision levels for the public good more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants’ willingness to pay. The paper thus provides a foundation for the use of voting mechanisms.
Uncertainty, polarization, and proposal incentives under quadratic voting: (QV): QV can provide an incentive for individuals to propose policies with greater uncertainty. The incentives of a potential proposer can come into direct conflict with maximizing social welfare.
Approval Voting and Incentives in Crowdsourcing: The quality of crowdsourced labels is, however, adversely affected by three factors: (1) the workers are not experts; (2) the incentives of the workers are not aligned with those of the requesters; and (3) the interface does not allow workers to convey their knowledge accurately, by forcing them to make a single choice among a set of options. In this paper, we address these issues by introducing approval voting to utilize the expertise of workers who have partial knowledge of the true answer, and coupling it with a (“strictly proper”) incentive-compatible compensation mechanism. We show rigorous theoretical guarantees of optimality of our mechanism together with a simple axiomatic characterization. We also conduct preliminary empirical studies on Amazon Mechanical Turk which validate our approach.
In Business Language
Plenty of research looking at ways to change our voting mechanism to ensure that everyone has a better voice and reduce social inefficiencies.
- Adding this to the governance protocol (be it a blockchain platform or a DApp), we can create better systems with less inefficiencies.
- Problem: this is still new, lots of testings to be done and parameters to define. But worth looking into.
Further Research Needed
Cost of vote buying (bribery) in a decentralised system given-rational participants & checking concentration of power
Quadratic voting in a decentralised system and the cost of vote buying
- Quadratic voting in an asymmetric Bayes Nash Equilibrium
Impact of continuous repeated social contract (or continuous public goods) between voters and implementers on vote buying
How efficient is transparent decentralised blockchain systems on accountability and fraud compared to systems today
Impact of bad actors tipping the decentralised voting system given vote buying/alternative ways of bribery (E.g. how many % of bad actors/bribers will destroy the system, how many % of bad voters can tip the system, like Byzantine’s General Problem)
Impact on short-term vs long-term incentives in both buying/bribery in a decentralised system (i.e. short-term = financial incentives now. Long-term = building social infrastructures for future generation like new schools, hospitals, etc.)
Impact of short-term view of voters and long-term goals/view of government. How much does decentralised voting (1 person 1 vote) create socially optimal outcomes? (Case in point: government spending a lot in R&D of technology that affects future generation, and issue is voted on by existing generation that do not share the sweet success.)
Mechanism design for accountability and socially optimal outcome. A VCG version of voting rights, perhaps? (An alternative to QV)
[Super Future] New markets, issues and solutions given the research of everything above
In Business Language
We need to design better mechanisms to incentivise people and create a fair system*
- We need to understand the externalities that could affect the voting mechanism design, like hackers or non-financial benefits
Voting in mechanism design is still at its infancy stage when it comes to blockchain. As we open this pandora box, more problems will start to appear, as is with new technology. The technology will continue to develop, and we, researchers/economists/future leaders, should definitely continue in the direction of new research to solve new problems.
Happy to hear further development in the space and/or ideas that will define our future!
Fair system* is a new term just like “human rights”. What is a fair system and how do you define it? That’s another topic for another day on the philosophical definition.