Michael B. Abramowicz

The Hidden Beauty of the Quadratic Market Scoring Rule: A Uniform Liquidity Market Maker, with Variations

For some applications, prediction markets that rely entirely on voluntary transactions between individual participants may provide insufficient liquidity to aggregate information effectively, especially where the number of participants is small. A solution to this problem is to rely on an automated market maker, which allows participants to buy from or sell to the house. Robin Hanson has described a class of automated market makers called market scoring rules. This Article examines a member of this class that has received little attention, the quadratic market scoring rule. Its prime virtue is that it provides uniform liquidity across the probability or prediction spectrum. Market participants will thus have the same incentive to do research that is expected to produce an expected change in the market prediction, regardless of the current prediction. Formulas are provided for implementing the quadratic market scoring rule, as well as variations, for example to implement conditional markets.

Citation to Legislative History: Empirical Evidence on Positive Political and Contextual Theories of Judicial Decision Making

We present empirical evidence suggesting that political context—judicial hierarchy and judicial panel dynamics—influences an authoring judge’s use of legislative history. Specifically, we find that to the extent that political ideology matters, a district court judge’s choice of legislative history is influenced, albeit modestly, by (1) the political makeup of the overseeing circuit court and (2) the political characteristics of a judge’s panel colleagues, as well as by the circuit court as a whole. These factors matter more than the authoring judge’s own political‐ideological connection to the legislators. Put differently, an authoring judge will have a greater tendency to cite legislative history by legislators who share political party affiliation with the colleagues and superiors of the authoring judge than legislators sharing the same political party affiliation as the authoring judge himself. These findings are consistent generally with positive political and contextual theories of judicial persuasion, collegiality, and strategic decision making.

En Banc Revisited

Legal commentators have proposed a variety of solutions to the perceived problems of the U.S. courts of appeals, from splitting large circuits to assuring partisan balance in panel decisions. They have always assumed, however, that judges a particular appellate court should have sole responsibility for creating the law of that circuit, except when caseload pressures make it necessary to borrow visiting judges. In this Essay, Professor Abramowicz proposes using visiting judges in a more important role: en banc decision-making. Under this proposal, en banc decisions for one circuit would be made entirely by courts of appeals judges randomly selected from other circuits. In addition to increasing the likelihood that any given decision is more likely to be that which a majority of all courts of appeals judges would make, visiting en banc panels would allow for optimization of the number of judges participating in en banc and for generalist review of specialized courts. After assessing these benefits and some possible costs of the proposal, Professor Abramowicz advances a more general case for majoritarian judicial decisionmaking.

A Compromise Approach to Compromise Verdicts

Although one of the legal system’s most salient attributes is its insistence that a civil jury choose the story of one party over that of another, scholars have thus far paid almost no attention to the possibility of replacing the preponderance-of-the-evidence rule with an alternative that is not “winner-take-all.” This Article focuses on the issue of uncertainty about what the defendant did or whether the plaintiff was injured, offering an alternative to the extremes of all-or-nothing and compromise verdicts. It considers the possibility that, while sometimes an all-or-nothing verdict is appropriate, at other times a compromise verdict would be better. It also proposes a compromise approach in the form of a system of mixed verdicts, distinguishing between cases in which the trier of fact has a relatively high degree of confidence in its liability determination and those in which there is much less certainty. As I will show, arguments for all-or-nothing verdicts are most powerful when the trier’s estimate of the probability of liability is either quite low or quite high, and arguments for compromise verdicts are strongest for cases in which the balance of evidence is relatively even. In Part I of this Article, I consider a variety of general arguments about compromise verdicts, arguments that seek to discern the best verdict structure for all cases without asking how verdict structure will advance various aims of law. In Part II, I consider several such aims directly, including deterrence, efficient breach, restitution, retribution, and equality. The impact of compromise verdicts and a system of mixed verdicts on litigation costs is examined in Part III, which focuses on incentives to file and settle lawsuits. Part IV switches from an examination of factual uncertainty to a preliminary assessment of legal uncertainty. Though the prospect of compromise solutions to legal uncertainty introduces some additional issues, a system of mixed verdicts may be a promising way to accommodate a diversity of normative approaches to legal decision making. In Part V, I briefly consider some implementation issues and conclude.

The Uneasy Case for Patent Races Over Auctions

In advancing his prospect theory of patents, Edmund Kitch dismissed the possibility of distributing rights to particular inventions through auctions, arguing that the patent system avoids the need for governmental officials to define the boundaries of inventions that have not yet been created. Auctions for patent rights to entire inventive fields, however, might accentuate the benefits of a prospect approach, by allowing for earlier and broader patents. Auction designs that award the patent to the bidder that commits the most money to research and development or that agrees to charge the lowest price, meanwhile, can reduce the costs of the prospect approach. Concerns about the governments ability to decide correctly when to hold auctions, however, provide an uneasy case for patent races over patent auctions. More modest uses of auctions might improve welfare, though. For example, an auction to a small number of parties of the right to race in a technological field might reduce wasteful duplication and thus accelerate innovation. Similarly, patentees might be allowed to demand auctions for extended patent scope, with the caveat that a patentee would need to outbid others by a substantial amount to win such an auction.

The Inducement Standard of Patentability

In Graham v. John Deere, the Supreme Court explained that patent law’s nonobviousness doctrine is meant to restrict the award of patents only to “those inventions which would not be disclosed or devised but for the inducement of a patent.” This Article argues that this inducement standard, largely ignored in practice, should serve as the doctrinal polestar. Such an approach would provide a solid economic foundation for the patentability standard and would align patent law with the many other fields of regulatory law that currently apply economic analysis in determining the scope and content of regulation. The Article also offers several refinements to the inducement standard and explains how the patent office and courts could implement the inducement standard in an administrable way.

The Politics of Prediction

contexts such as pari-mutuel racing, they have always effectively played that role. The current price of a share of stock provides a prediction about a company’s future cash flows, and the pari-mutuel odds reflect a group consensus about the likely outcome of a race. But in neither context is prediction the central purpose. Financial markets exist to promote broad and diversified ownership of enterprises, and pari-mutuel betting has long been a vehicle for gambling and entertainment. An innovation called prediction markets combines the most useful aspects of both approaches—the dynamic trading of financial markets and pari-mutuel’s focus on a specific event—to generate group forecasts that are interesting for their own sake. Prediction markets apparently originated in 1988, when the first Iowa Electronic Markets predicted the winner of the presidential election. The founders of the Iowa Electronic Markets wanted a vehicle that would better explain the workings of financial markets, and their approach built on the work of experimental economists who had conducted experiments using simplified financial markets in the laboratory. Robin Hanson reports having first considered the idea of prediction markets at about the same time as the Iowa Electronic Market was developed, and his revolutionary contribution was to recognize that prediction markets (or “idea futures,” as he then called them) might serve not merely as a test of financial markets, but as a tool in their own right, to produce group consensus forecasts. Hanson’s initial academic article on the subject focused specifically on “science claims,” but his argument clearly showed that markets could be used to assess virtually any claim about the future that could eventually be verified. The Foresight Exchange, which implemented his vision, includes claims about a wide variety of Michael Abramowicz

Cryptocurrency-Based Law

Bitcoin is a protocol promoted as the first peer-to-peer institution, an alternative to a central bank. The decisions made through this protocol, however, involve no judgment. Could a peer-to-peer protocol underpin an institution that makes normative decisions? Indeed, an extension to the Bitcoin protocol could allow a cryptocurrency to make law. Tacit coordination games, in which players compete to identify consensus issue resolutions, would determine currency ownership. For example, an issue might be whether a cryptocurrency-based trust should disburse funds to a putative beneficiary, and the game’s outcome would resolve the question and result in gains or losses for coordination game participants. A cryptocurrency can also be used to generate rules or other written codes. Peer-to-peer law might be useful when official decisionmakers are corrupt or when agency or transactions costs are high. A modest starting point for cryptocurrency-based governance would be as a replacement for Bitcoin’s centralized system for changing its source code. A cryptocurrency incorporating tacit coordination games could serve as a foundation for other projects requiring peer-topeer governance, ranging from arbitration to business associations, which would enjoy inherent limited liability and would lack designated management. * Professor of Law, George Washington University. I am grateful to David Abrams and Omri Marian for helpful comments and to participants in workshops at Boston College and George Washington University. All errors are my own.

Toward a Jurisprudence of Cost-Benefit Analysis

In his book, The Cost-Benefit State, democratic theorist Cass Sunstein urges regulatory agencies to make decisions based on numerical assessments of regulatory consequences, factoring in variables ranging from effects on consumer prices to lives saved. In this Review, I seek to illustrate Sunsteins conception of cost-benefit analysis and critique this conception by suggesting that cost-benefit analysis could serve a more important role than Sunstein would allow. I also argue for a more active judicial role in scrutinizing agency actions than Sunstein would recommend, though not necessarily a less deferential one. In Part I of this review, I outline Sunsteins defense of the role of cost-benefit analysis and his recommendations for implementing it. Part II considers how Sunstein envisions implementation of cost-benefit analysis, including the ways in which Sunstein seeks to expand the practice and the ways in which he ultimately would limit it. In Part III, I offer a broader vision of cost-benefit analysis, recognizing the limitations of both unconstrained agency decision-making and unconstrained judicial decision-making. I argue that the development of cost-benefit principles through common law processes best avoids these opposing dangers. Finally, also in Part III, I argue that judicial review of cost-benefit analyses should take into account agency reputation and political proclivities as developed over a number of such analyses, as well as the political orientation of the courts in cases reviewing agency action.

Autonocoin: A Proof-of-Belief Cryptocurrency

This paper proposes a self-governing cryptocurrency, dubbed Autonocoin. Cryptocurrency owners play formal tacit coordination games by making investments recorded on the blockchain. Such investments represent bets about the focal point resolution of normative issues, such as whether a proposed change to Autonocoin should occur. The game produces a result that resolves the issue. With a typical cryptocurrency, the client software establishes conventions that ultimately lead to the identification of the authoritative blockchain. Autonocoin completes a circle by making transactions on the blockchain that in turn define those conventions and the expected software behavior. The distributed consensus mechanism embodied by formal tacit coordination games, meanwhile, can make other types of decisions, including which of competing blockchains is authoritative and whether new Autonocoins should be rewarded to benefit those who have taken actions to benefit Autonocoin. This establishes a unique funding model for a cryptocurrency, and it addresses objections to cryptocurrencies issued predominantly to the initial founders, as well as to those that encourage wasteful mining activities.