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October 29, 2007


Viz the income measure, I'm curious why private lenders don't already do this; they could charge differential rates on student loans for different schools and majors. Perhaps there are regulatory reasons why this isn't done?

Onge beat me to it. Or "I'll buy 1% of your income in 10 years for $X if you try for major Y."

Additional thought: Bets on large bundles of students mean that bettors don't care as much about variance as the students do. Most people would rather have a guaranteed salary of $80,000 than a 50% chance of $120,000 and a 50% chance of $45,000. ("Revealed preferences" otherwise may reflect unrealistic optimism which is an example of what this market is trying to get rid of.)

What many high school students today might have been more interested in (I probably would have when I was in high school) is what colleges they would get into.

This situation is even more ideal for a betting market, since the outcome is very simple (accepted/rejected/waitlisted). It's true that unlike most decision markets Hanson recommends, this wouldn't provide any particularly useful information regarding decisions (after all, the student could always apply and see if he got in or not, so the best any market could do would be to let the student know his chances a few months earlier).

Peter and Eliezer, selling shares of future income is an interesting option.

Eliezer, yes, a risk-adjusted income measure might advise better, at a cost of more complexity for traders.

David, yes, "where would I be accepted" futures would be much easier to implement, which might well more than compensate for being less useful as a decision aid.

Re: regulatory reasons, I suspect that selling shares of your future income would have enforceability problems. If nothing else, a lot of voters would view that as deeply offensive and "exploitative", and thus ban it. (Incidentally, why don't governments issue equity in addition to debt?)

If it could work, that would have the added benefit of a derivatives market in labor, which would allow you profit from knowledge of future changes in wages, or to hedge against your labor's loss of value.

the singapore government already does something like this with its pre-college employment contracts that bind students to a six-year post-college civil service/state enterprise career: it is betting on future accomplishments based on current ones. Their success at picking winners has been somewhat mixed depending on who you talk to, partly due to inherent incentive problems.

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