Oracles

This paper investigates the law and economics of oracles: media for divining answers to questions about the unknown. I develop a simple theory of oracles with rational agents. My theory shows how oracles can operate as institutional solutions to conflicts that characterize everyday social relations in primitive societies where neither government nor private property rights perform this function. Oracles secure correlated equilibrium in situations where, without them, individuals are stuck in a suboptimal world of simple mixed strategy equilibrium. By randomizing strategies about how to behave in situations of conflict and coordinating individuals' choices across that randomization, oracles can resolve conflict efficiently. To illustrate my theory I consider a society of persons who rely exclusively on oracles to decide how to behave in cases of interpersonal conflict: the Azande. Using the equivalent of a "Magic 8 Ball" to resolve such conflicts improves Zande social welfare.