Thoughts on Ralph Merkle's "DAO Democracy"

The legendary scientist Ralph Merkle talked about his paper DAO democracy in a Epicenter podcast around 2 years ago, and the episode was re-posted this summer when all the Epicenter hosts were travelling at the same time. As the result, I listened to this episode three times and really enjoyed it.

In light of the Trump election and Brexit at the time, the core of Ralph Merkle’s thesis was that democracy in the current shape and form is flawed because people are neither qualified nor incentivised to make quality assessment of the situation. One better way is to harness the intellectual ability of the bright people without letting them take over too much power. His proposed solution is to leverage prediction market.

Using election as example, instead of throwing upon average citizens the intellectual burden of evaluating if a candindate could become a good president, a series of prediction markets can be established to predict the rating of each of the candindates in 4 years if they were to become president. Bright people, incentised by the potential financial gains (or loss if proven wrong) in the prediction market, would try to do their best job figuring out which candindate would most likely make ordinary folks happy in 4 years. Every year, average Joes would only vote for the stuff that they are familiar with: are things going well in your life. The outcome of the election would entirely based on the result of the prediction market now.

There are more nuances to the design, but this is the gist of it.

As an elite scientist, Ralph Merkle obviously doesn’t believe in one person one vote type of democracy. The legendary strategist Lee Kuan Yew had expressed similiar opinions. But instead of going down the path of assigning weights to each vote that more informed people would make bigger impact in the election, Merkle’s design does that implicitly by reducing the complexity of individual voting to something that everybody is qualified to answer, but the collective outcome of the voting could be used to answer very sophiscated questions. Couple that with an incentive structure to encourage bright people to make the best prediction, as well as a DAO to enforce transparency of the entire process, it seems like a reasonable replacement to the current form of democracy, at least on paper.

There seems to be something very special about limiting the role of individuals to something very dumb but collectively achieving meaningful goals. Proof of work in Bitcoin is a typical example: each mining machine just computes pointless hash values but as a whole it secures the entire network and gives its open permissionless nature. One could make the same argument to animal reproduction mechanisms. Perhaps the reason that many things work brilliantly at the macro level is because they are stupidly simple at the micro level. It does feel like this pattern captures something fundamental, but I have yet to find a way to articulate it. For me, this is the most interesting point in Merkle’s paper.

However, I don’t think this design is game theoretically sound. First off, still use election as an example, the economic benefit of becoming the president is potentially huge, to the extent that “bright people” might be willing to take a loss to make the wrong prediction in the prediction market, and get compensated in some other ways. For this to work, the money at stake need to be huge. Secondly, who should be the expert? The easy answer is whoever put their money where their mouths are. This doesn’t take into account people’s pride. No one wants to be perceived as dumb, and as a result, this could as well become a public gambling fest. Last but not least, prediction market has the problems of perverting the original incentives. Election is supposed to be an idealogical process, with financial implications, one might vote for someone purely out of finacial interests rather really believing in the candindate.

Still, very interesting topic, thought provoking discussion, highly recommend to listen to the entire episode.

Written on November 1, 2018