---
description: Trades nullified when conditions fail let speculators estimate policy effects without ever proving what would have happened otherwise
type: framework
domain: internet-finance
created: 2026-02-16
source: "Hanson, Shall We Vote on Values But Bet on Beliefs (2013)"
confidence: proven
tradition: "futarchy, prediction markets, mechanism design"
---

The called-off bet mechanism is the technical foundation that makes futarchy practical. A market trades asset "Pays $W if policy N adopted" for fraction of "Pays $1 if N adopted" - but all trades are nullified if N is not adopted. This gives speculators incentives to estimate E[W|N] accurately, averaging welfare W only over scenarios where N happens.

The crucial insight is that we never need to verify counterfactuals. We only ever need to know the consequences of choices that were actually made. Speculators are not betting that a decision will later be shown to be best - we will never know this and never need to. They are simply estimating expected outcomes conditional on observable events.

This solves the fundamental epistemological problem of policy evaluation: how to choose between alternatives when you can only observe one path. Traditional democracy votes on both values and means, then can never verify if rejected alternatives would have been better. Called-off bets separate the problem: vote on values (the welfare function W), bet on beliefs (conditional expectations E[W|policy]), and only verify the welfare outcomes that actually occur. The welfare function itself can be [[national welfare functions can be arbitrarily complex and incrementally refined through democratic choice between alternative definitions|arbitrarily complex and incrementally refined through democratic choice]], so this separation does not sacrifice nuance -- it concentrates it where markets can evaluate it.

The mechanism connects to [[the future is a probability space shaped by choices not a destination we approach]] - called-off bets operationalize this by making speculators average over probability distributions of futures conditional on different choices, rather than predicting single outcomes.

For [[Living Capital vehicles pair Living Agent domain expertise with futarchy-governed investment to direct capital toward crucial innovations]], called-off conditional markets could estimate innovation impact without requiring proof that rejected proposals would have failed.

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Relevant Notes:
- [[the future is a probability space shaped by choices not a destination we approach]] -- philosophical foundation for conditional probability estimates
- [[Living Capital vehicles pair Living Agent domain expertise with futarchy-governed investment to direct capital toward crucial innovations]] -- application domain
- [[trial and error is the only coordination strategy humanity has ever used]] -- contrasts with futarchy's ability to evaluate without full trial
- [[national welfare functions can be arbitrarily complex and incrementally refined through democratic choice between alternative definitions]] -- defines the W in E[W|N] that called-off bets evaluate
- [[futarchy price differences should be evaluated statistically over decision periods not as point estimates]] -- addresses how to read the price signals that called-off bets produce
- [[speculative markets aggregate information through incentive and selection effects not wisdom of crowds]] -- explains why the conditional estimates converge on truth

Topics:
- [[maps/livingip overview]]