Update on Plea Bargains and Prediction Markets
posted by Dave Hoffman
In Let Markets Help Criminal Defendants, I wrote that “If I were running a public defender service, I’d consider setting up an online prediction market for the conviction of my clients.” I still think this is a good idea, but someone suggested a serious problem that would have to be remedied for the scheme to be possible.
Right now, prediction markets bets on judicial events, like the conviction of Lewis Libby (whose graph is to the right), pay off at 100 for conviction, and 0 for any other ending of this set of charges, including a plea. This creates noise which renders them useless for criminal defendants looking to see if they ought to plea. That is, as I didn’t fully appreciate before, traders must be estimating the probability of conviction, tempered by the likelihood of a plea – prices are lower than the actual market estimate of a guilty verdict independent of a plea. That is, if the current price of Libby’s “stock” is .40, that means that incarceration is not 40% likely. It means that traders think it is 60% likely that Libby will win at trial, receive a mistrial, obtain a dismissal, be granted a pardon, or plea. I imagine that the likelihood of a plea accounts for a large percentage of this figure.
If traders thought that conviction prices affected defendant behavior, then presumably they’d seek to put in sell orders at prices above those where rational defendants would plea. This would put downward pressure on price and make the entire system useless from defense counsel’s perspective.
For my system to work, you’d have to exclude the possibility of a plea (i.e., nullify all bets if there is a plea). Of course, this still would create some dynamic tension, as bettors presumably would become eager to invest time and trade only as pleas become less likely – near trial, or in jurisdictions, like Philadelphia, where the District Attorney has a no-plea policy. But the resulting prices would be more informative than those offered by the current system.
June 6, 2006 at 5:37 pm
Posted in: Criminal Law, Criminal Procedure, Economic Analysis of Law, Empirical Analysis of Law, Law and Psychology, Law Practice
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Responses (3)
Real World - June 7, 2006 at 1:10 am
You just figured out that public defenders have to take into account plea bargaining in criminal cases, and that’s why the economic model you presented was specious. Swift would be glad to see a law and economics professor willing to theorize in the great tradition of Big and Little Endians.
Dave Hoffman - June 7, 2006 at 1:21 pm
Real World: I agree with what I take to be your moral – that realistic models are better than unrealistic ones. Otherwise, I don’t see how what you say has much to do with what I wrote. Your first sentence, for example, makes no sense to me.
Dave Hardy - June 11, 2006 at 12:48 am
The odds of conviction in any criminal case are so high as to make the betting a bit one-sided. In City Court here, the prosecutor and defense customarily bet on how long the jury would be out, rather than on the outcome. The bailiff keeps the “official clock.”
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