Let Markets Help Criminal Defendants

ballandchain.jpgDan’s interesting post on plea bargaining made explicit the informational inequalities faced by criminal defendants and their lawyers. Indeed, one of the advantages public defenders have over private defense counsel is that they can more easily share information internally about the informal norms that “really” govern the system (judge sentencing practices; which cops tell what stories; which labs are sloppy; etc.) But even so, the instruments of law and order almost always will know more about the facts and the law than the defense, at least until the eve of trial and probably throughout the process.

That there are exceptions (Enron; OJ) proves the rule that informational asymmetry is a significant part of the prosecutor’s arsenal – indeed, this asymmetry justifies constitutional attempts to remedy the problem through mandatory discovery procedures. But I’m skeptical that legal rules alone are a panacea to structural problems. Why not try markets?

To be more concrete, the major decision that criminal defendants face is whether or not to plead guilty. The decision depends on a prediction about what will happen at trial. Assuming that defendants are risk averse, they will take pleas when rational actors would not, but generally will go to trial when the expected time served post-trial is less (by some margin) than the actual time proposed in the plea agreement. The problem is that (1) defendants are unsophisticated; (2) defendants’ lawyers are incented to push pleas; and (3) neither defendants nor their lawyers have as much information as prosecutors about likely verdicts.

If I were running a public defender service, I’d consider setting up an online prediction market for the conviction of my clients. Prediction markets did a fantastic job in the Enron trial. At the beginning of the trial, the odds of conviction were about 50% for each defendant; by the end, the odds were significantly higher. Now, I can understand why neither defendant would have pled facing a coin-flip’s chance at conviction. As I argued at the beginning of the trial:

I’d guess that the reason Skilling and Lay have not pled and Fastow has is demographics. Fastow is a young(ish) man, who can serve significant time and still emerge with earning power. Lay and Skilling don’t have the years left to do the time that the government (apparently) would find appropriate.

But for most criminal defendants, 50% odds would translate into a pretty hefty expected sentence that might make a plea more attractive. And, assuming that such markets would be sufficiently liquid, the predictions generated by traders ought to be both more accurate and less prone to bias than defense counsel’s odds. I imagine that the result would be a net decrease in pleas, and in the long term, as prosecutors reacted, less net jail time. That is, the current system is biased by risk aversion and agency problems – as others have observed – toward more jail. This effect may serve the forces of law and order, but it doesn’t necessarily serve the search for truth. Why not try something different?

Obvious objections: (1) the idea is “”utterly repugnant to a civilized society“; (2) thin markets are prone to manipulation; (3) incentives would increase to violate the attorney-client privilege; (4) it would look like public defenders are selling out their clients. Of these objections, I’d be most worried about #3.

Incidentally, if you are interested in thinking more about criminal law and the Enron trial, the Conglomerate is hosting what promises to be a great forum on the topic for the next two days. Check it out!

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7 Responses

  1. Paul Gowder says:

    Nice. But… when in the chronology of a prosecution can the market be expected to be accurate?

    For prominent cases, I’d worry about there being too much noise in the marketplace. For non-prominent cases, the issue would seem to be getting people with information to participate. (And making sure they have the money to meaningfully do so — which would also be an issue with the prominent cases.)

    If I were the prosecutor, I’d get a warrant to monitor the IP addresses of the people going onto the gambling site and subpoena heavy betters as witnesses. 🙂

  2. Eh Nonymous says:

    Paul: mostly right. In fact, interesting point about the witnesses.

    But, a prosecutor (like the SEC does) should monitor such pools and go after heavy _winners_. Nothing wrong with betting heavily on your conviction, so that if you go to jail, you win either way.

    No, the problem is if people are making a killing on inside information. 😉

    So do like the SEC does, wait for a suspicious win, then swoop.

  3. Miriam Cherry says:

    Interesting idea. I have an article (forthcoming, soon!) in the Northwestern University Law Review about using information markets to predict Supreme Court decisions.

    For a number of the reasons – that you already raise in your post – I would think the place to start might be with Supreme Court cases, or perhaps certain types of high dollar value civil cases. Less risk of bad PR for the markets, which are still gaining acceptance.

    But there might be other market-based ways for PDs offices to share info. – perhaps through an internal market or through websites – that could work to level out the informational asymmetries.

  4. Dave Hoffman says:

    I agree that liquidity is the big problem, but (1) even thinly traded markets are relatively useful; and (2) the gambling industry has yet to meet demand. Perhaps starting with high profile cases- capital crimes, political bribery investigations-makes sense, although the potential for herd behavior seems significantly higher in such contexts.

    I see no reason to criminalize insider trading in these markets, and lots of reasons not to. And if it turns out that the markets result in more and better witnesses for trial, so much the better.

    I doubt that this will happen, however. Let’s say that a witness exists who is unknown to both sides. Why would they trade? They have no real private information about the likelihood of a finding of guilt by the jury – their information is so private that it can’t affect the outcome – they only know about the actual fact of guilt. Now, they may think that if they saw someone else commit the crime then it is marginally more likely that the defendant has an alibi, in which case they will trade, but this seems to me to be an odd case that doesn’t really suggest much.

    Generally, the folks who will trade are likely to be a mix of semi-insiders (probably lawyers who know the prosecutor and defense attorney) insiders (counsel? court staff? family) and outsiders (folks who read the newspaper, or those looking for ways to make money), with outsiders predominating.

  5. Paul Gowder says:

    Dave: all you said is true enough, but that seems to cast a little doubt on the efficacy of the practice. Outsiders generally won’t have enough information about the facts of a given case (except in highest profile cases) to use whatever superior case-evaluation resources they have. This of course doesn’t apply in the cases you suggest starting with, although I think outsiders would operate best in fact-intensive (thus hard for defense counsel to analyze) cases with extreme publicity of all facts (thus permitting competing analysis).

    Semi-insiders would have personal incentives either to (a) give the information they have freely (to their own friends), and/or (b) withhold information from the market by not participating (to keep information from going to the other side from their friends).

    Insiders are the truly interesting category of market participant. I submit that counsel could never do it because of major conflict of interest problems (imagine defense counsel placing a bet on conviction!).

    On the other hand…

    Would jurors be permitted to trade in the middle of trial?

    That would be very interesting indeed!

    If the system could be massaged to make that permissible… oh, how much fun it would be to try and create something like that.

  6. One could establish a pool of attorneys who practice criminal law and split their time between prosecution and defense. That would get rid of the claim of uneven information.

  7. Lil' Stevie says:

    Isn’t this really a newish look at the Prisoner’s Dilemma?