The irrational decision-making problem

Governance General Governance Conversation
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Hello everyone,

You can read this thread in about 10 min. If you are not willing to do this, you should stop right now as it is probably not worth your time if you were already doubting about finishing this.

Now that I have the one percent of readers still willing to sacrifice their free time on this, here he goes.

So as Cardano is shifting gears in adapting to a democratic governance system, I would like to share some thoughts about it and I would love to see some interaction on it.

First things first let us begin where it all started in Athens. They invented democracy. I will not go into details about how their democratic system exactly worked as it is not a matter of this subject. At that time there were however some people who criticized the system. People like Plato, Aristotle, Aristophanes, and Thucydides had their issues with democracy.
The main reason for their dissatisfaction came from the irrational decision-making of the people and how that can lead to disastrous outcomes. One of these bad outcomes manifests itself with demagoguery or a more mild term called populism. Demagogues graft themselves on the emotions of the people and try to overturn the current establishment by making unrealistic promises and what appear to be easy solutions. Famous demagogues that we will all know are Hitler, Mussolini, and maybe even Trump. Even in ancient Athens, there were already demagogues like Cleon. As history states, these persons did not have the best interest of the people in mind and it ended disastrously. I will not delve into the many other ways irrational decisions can be harmful in a democracy as the main focus of this thread revolves around irrational decision-making and how this affects multiple disciplines that Cardano tries to merge and the possible negative effects this might cause. But let me point out that an informed voter is worth 10 voters.

To better understand the issue at hand we must understand how decisions are made. This might surprise you a bit but most of our decisions in our everyday life are irrational decisions as we tend to not think about these decisions too much. For example, ordering a coffee. A rational human being would gather all the necessary information to make the most cost-benefit decision, taking into account the opportunity costs of going to another shop, ordering another kind of coffee, and the cost to the environment, … The problem that we face today is that first we do not have all the information at hand to make a well-informed decision about our coffee choice and second we would not have the computational power to make the right decision on our coffee choice without spending too much time on it. It is therefore that human nature has gifted us with a biased system that is most of the time correct in predicting the right choice.
This is our first operating system when making decisions. It is unconscious and learns based on experience. The second system is the reverse and is based on rational thinking. These systems work in tandem with each other. For the daily routine tasks, we mainly use the first operating system while for the decision we sit down for and take our time with we will use the second operating system. A nice example of how our first operating system gets fooled is illusions. At first sight, we intuitively see something that is correct but after some thought, there is an illogical structure that should not be in there. This is basically how these two systems work together. Our intuitive system is our baseline decision-making process if there are some cues or forces then the logical operating system enacts. As you can see this system can fail due to multiple reasons. Daniel Kahneman already analyzed multiple cognitive biases that the intuitive system has that can have significant impacts on the decision-making process. It is therefore important to tackle the issue when dealing with a democratic voting system.

Not only in politics are irrational decisions made also in economics do they appear. The economic literature even has a word for a rational hypothetical human being called homo economicus. Most economists assume that everyone is a homo economicus, which is ridiculous. Especially in finance, there is a tendency to quantify a lot of the decision process and just assume everyone thinks rationally. A good example of this is the market efficiency hypothesis that states that all information is included in the price and that stocks are therefore never over or under-valued. Most of the time this can be correct but more often than not there are a lot of exceptions. This is mainly caused by multiple factors of reality such as that at one moment in time not everyone has the same amount of information at hand and shocks such as the FTX scandal can create a ripple effect where the last persons on the chain are screwed. This idealization of how people operate in an economic system creates a painful reminder about human limitation and when building a cryptocurrency the effects of this behavior should be looked out for.

Another painful error that has given rise to irrational decision-making is low financial literacy. Basic understandings of compound interest rates, inflation, and net present value are fundamental ideas that you need to master to make sound financial decisions. Most people in everyday life cannot or do not want to invest time to comprehend these concepts and therefore make big mistakes regarding their financial well-being. Although there is no big scientific body around difficult concepts in cryptocurrency, I can only imagine the low literacy level on this within the community and as there are no real tools to educate people on it besides the usual Reddit, youtube channel or discord channels, it becomes painstakingly clear that the lack of information on the subject is a problem.

Cardano merges all these aspects into one platform, but nobody in the community
Addresses improper decision-making while it is one of the main sources of evil. Therefore I would like to propose the following or a similar system be put in place.
The system has three main pillars. First is the education pillar where people can get informed about areas of their interest. They should undergo a certain test to identify the knowledge they have learned. A token should be minted once they have finished the proof of understanding of the information. The value of the token finds itself in three aspects. First, it identifies the knowledge base of the address used. Knowing what certain people can understand is important to the community to trust advice from these addresses.

Secondly, it should enable the use of certain products as we do not want to have users who do not understand the products or tools they are using or buying. And last it should increase the voting power of the address in some way or under certain conditions as informed voters make well-informed decisions on projects. The first area addresses the first main problem with irrational decision-making. We do not have all the information at hand. The first area solves this by identifying and reinforcing the users who know about making the right decision.
The second pillar is the development pillar. Here content creation is made with a process for quality checks and identifying fake information. The second pillar also addresses the second issue of irrational decision-making. Namely, the lack of computational power. Tools should be made that help people quantify the value of projects and the current status of the community. A basic overview of key performance indices is a good example of how we can improve the computational power humans lack for better decision-making. Of course, good KPIs should be selected or identified. An example would be a KPI that measures the hype around a certain project. If the KPI indicated that the hype is real, care should be taken about making decisions on the project. A good explanation of the KPI is therefore necessary. Next to that, I believe that people who develop should be incentivized for the work they do. It is therefore necessary to create a token that has the following features. First, there should be some reward connected to the token if the development is complete. I strongly recommend that rewards are based on the usage of the developed information or tool. It is not because you provide info that it is valuable information. Secondly, I believe that developing a tool or publishing correct information for the community grants you the ability to increase your voting power in certain areas as you have experienced how it is to develop something or put your time and effort into something for the community. This gives you a better perspective in certain areas and enables you to help us color in the full picture of the value of certain projects.
The last pillar is market creation. Here all the projects launched on Cardano should be placed. The idea of a marketplace is simple. It is a centralized overview of all projects within the community, where based on the tokens you will be able to access certain areas of the marketplace. This prevents irrational decision making such as buying a swap option if you do not know what a swap option is. Lastly, it enables the community to band together which will create a force against any future monopolistic behavior within the community.

I call this idea PECCON (Pecunia Concilium)Right now this is just an idea with a name on it.
Let me know what you think of this and if you want to work on this please contact me!

korilium
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Interesting read, quite deep and philosophical. Though, we definitely saw this in action with the recent Catalyst Circle 4 voting on dripdropz.

I agree, not many people will take the time to read this.

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Hey there @korilium,

Thanks for sharing your thoughts. Avoiding irrational decisions and creating a community of well informed participants is indeed very important.

When it comes to your ideas I would like to know more about how you think a system like this could work.

But which entity or group creates those tests and has the authority to do so? I believe we should not have an elite class that authorizes who can participate in governance. This seems to me of just being another group that could be easily corrupted.

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Hey @Lovecoach ,

Yes, this is an issue, but could we not partially resolve this by enabling people to adjust the test and rate it once they have accomplished it? You can see this then more like finding an optimal test by making a gradient decent approach.

For example, people who make a tool are also required to explain how the tool works and build a first version test. This first version is probably weak as the builder wants more usage of its tool. The first adopters of the tool will probably have some issues with the test and the documentation and will be able to make adaptations (I also believe first adopters should be incentivized to make adaptations). These adaptations will become different versions of the test/documentation. Once there are different versions, people will be randomly given one of the versions and they can then rate them. Once a clear winner is determined between the version, it will become the main test on which all new adaptions are based on. This is continuous until the optimal test is found.

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hey @gjlite,

I think this definitely goes in the right direction. Being able to vote about who should represent and be a leading figure within the community is already a step in the right direction, but this is again just normal democracy. You are not required to read the things that they are going to do or understand the implications of voting for someone. You can just vote without thinking which is dangerous.

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Hello all,
An idea I had, and shared on an older post, is that we don’t actually need to test people, but provide an educational objective to complete to be able to vote.

I believe using a tool such as Cardano Pick would be the way to go. Nils, @NilsDannemann, is still developing it, but what he wants to achieve can help educate voters prior to voting.

Let’s use the just completed Catalyst Circle vote as an example. Someone wants to vote for their representatives. The vote can be done through any voting system set up, but first they must earn the right to vote by visiting Cardano Pick, read every Platform Statement as individual jobs. Each Platform Statement job read earns a token, and by collecting every token, the person can vote.

We need something like this, otherwise we’ll continue to see the results of popularity and name recognition, as we saw with the Catalyst Circle vote. I mean, some of the 5 representatives we have now, didn’t even bother to complete their Platform Statements, and they are friends of mine as well as many others, but I wouldn’t vote for them for this role.

As always, feel free to correct anything, add ideas, or even rip it apart.

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Nice post. I agree on the hazards of mob rule. I also like the idea of a class and tests with NFT certificate.

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Hey @korilium,

Thanks for getting back to me!

It is a good idea to have such a test editable, but this also leaves much room for exploitation. An adversary could train a bot army to pass the test and, worst case, adapt it in a way that favors them even more. Where would we have Sybil resistance?

While I understand the frustration of un-informed actors having the same say as you, I’m also not a fan of excluding groups in the governance process. Gatekeeping can become a slippery slope.

I see a lot of potential in delegated representatives (DReps) / liquid democracy. Of course, there are a lot of challenges with this system as well, especially if the whole system will be nothing more than a popularity contest. But having domain experts become Dreps that could make informed decisions and potentially be held accountable can be a game-changer.

I would love to know how you feel about that @korilium

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Hey gjlite,

The Cardano Pick is a great initiative and something the community really needs. I will definitely be checking it out!

I also think that this is best implemented as part of the voting system but as @Lovecoach said it might indeed be important how these jobs/tests are made as this could indeed bias the results.

Love the idea of the tokens by the way.

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hey @Lovecoach,

The Sybil resistance will always be an issue when you try to vote in a digitally connected manner, but creating a digital identity would already enable us to solve big parts of this problem. As you might already know, they are already working on this and could really be a game changer for building a digital democracy

I am not a big fan of representation in democracy for a couple of reasons. First, there is a trade-off. You set a duration on the representation or you can only vote once. Both of these are limitations of the system. If you set a duration there is a tendency to postpone difficult situations that need to be addressed as you are only elected for a certain period you have no inclination to build long-term solutions. Belgium’s democracy has a lot of these issues. If you only vote once then they are elected for life and there is no real pressure to act in the interest of the people as they have from that moment forward no real power to do anything.

In Zwitserland they have a more direct democracy and it is really interesting as the people can have a direct influence on policies being made. I think that is a very good idea as long as the population is correctly informed about the policy they are going to vote on.

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Hi all,
This is a general idea, that responds to some of the issues of representation. I actually got it from a novel, and I’ve always thought it was a unique idea to mitigate some of the power problems.

When representatives are elected, their wealth is added to the treasury for their term. This encourages hard, consistent effort to maintain the economy. No, raising of taxes, or other means to artificially inflate the economy. Since their own wealth is also on the line, the incentive to do well becomes an imperative. In this system, individuals didn’t run for office, but were nominated for it.

How we could modify this to suit Cardano, I don’t see at this time. There are much smarter people than me that may find a way.

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Hi @korilium and @gjlite,

I hope you both had a great Christmas weekend.

When it comes to SSI and DIDs, I believe it is imperative that we first have a standard that enables interoperability. Otherwise, we will run into similar issues as today.

The classic “skin in the game” saying. I also believe that if you want to become a representative and receive a delegation from others to vote on their behalf, it is crucial to be held accountable. In what ways exactly is something the community should decide.

I could think of many different options, but if we want to refrain from any monetary constraints, we could at least implement social guidelines, e.g. only fully doxxed individuals can sign up as DRep, and every vote they cast is auditable.

That’s why it’s crucial to have a system that allows one to immediately withdraw delegation and maybe set a maximum period for a delegation to last.

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I enjoyed reading your post, but I do have some questions about your characterization of democracy and the criticisms leveled against it by ancient philosophers. While it’s true that democracy has its flaws, I think it’s important to remember that it remains one of the most effective systems for promoting equal representation and protecting individual rights. I’m curious to hear your thoughts on how Cardano can balance the need for democratic decision-making with the need for informed, rational decision-making.

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Hey @Yevhen_Karpenko,

Nice of you to join the conversation. Indeed as of today, there is no better system invented and implemented than the democracy of today. However, this does not mean it is the optimal system out there. In our history, we have not experimented with a lot of other methods as the current one was sufficient, but as our society becomes more complex, it is increasingly more difficult to understand what exactly the person representing you is exactly debating. Domain knowledge on the subject and a good understanding of the current situation in that subject are matters that the general public finds increasingly difficult to understand. That is why I think that a more informed democracy is necessary. It is aslso impossible these days to fully represent someone on all the matters in society as our system is too complex for human understanding to fully encapsulate.

These two reasons, the impossibility to represent someone on all matters and the difficulty of truly understanding the representative actions on the matter from the public side, are the two big pitfalls of the current system.

Let me know what you think of it.

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