Comments on: Gambling and a New Approach to Regulating Information Markets http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/ Prediction Markets For All Tue, 06 Jan 2009 11:25:55 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Does Liquidity Affect Securities Market Efficiency? - Paul Tetlock’s new abstract | Midas Oracle .ORG http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-21680 Does Liquidity Affect Securities Market Efficiency? - Paul Tetlock’s new abstract | Midas Oracle .ORG Sat, 13 Sep 2008 09:34:47 +0000 http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-21680 [...] - Gambling and a New Approach to Regulating Information Markets [...] [...] - Gambling and a New Approach to Regulating Information Markets [...]

]]> By: Chris Masse http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-21 Chris Masse Thu, 05 Oct 2006 17:58:55 +0000 http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-21 I meant: 1. Entertainment-only gambling (bookmakers, casinos) 2. Speculative prediction markets (BetFair, TradeSports) 3. Prediction markets that has hedging capacity (HedgeStreet, etc.) 2. Predictive power = social utility #1 3. Hedging = social utility #2 If there is a social utility, it should be legal. Tetlock and Hahn want to assess whether there's "valuable information for improving economic decisions". Isn't it a bit too narrow? What's useful for one person or business is useless for another, and conversely. What if sports prediction markets generate useful predictive power for my particular sports-related business? How could I demonstrate that to the two AIE-Brookings guys? I meant:
1. Entertainment-only gambling (bookmakers, casinos)
2. Speculative prediction markets (BetFair, TradeSports)
3. Prediction markets that has hedging capacity (HedgeStreet, etc.)

2. Predictive power = social utility #1
3. Hedging = social utility #2

If there is a social utility, it should be legal.

Tetlock and Hahn want to assess whether there’s “valuable information for improving economic decisions”. Isn’t it a bit too narrow? What’s useful for one person or business is useless for another, and conversely. What if sports prediction markets generate useful predictive power for my particular sports-related business? How could I demonstrate that to the two AIE-Brookings guys?

]]> By: Michael Sankowski http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-20 Michael Sankowski Thu, 05 Oct 2006 17:34:29 +0000 http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-20 Chris, You are making sense. I think the overall test of economics is in some ways vague - but thats its a good guiding principle. I don't think you're going off topic that far - this is an area that simply needs more hashing out, and "Is this for entertainment?" is an excellent additional question. It might actually be better opener than economic value. For example, many of the bets monitored by the Long Now foundation http://www.longbets.org/predictions address issues that are important (i.e. "you are immortal"), but are too vague or too powerful to have much real economic value to a single person/entity. I hesitate to call them 'entertainment' as the whole point is to encourage discussion on the topics listed. You could easily create interesting predictive markets around some of the 'bets'. Long Now solves the 'gambling' part of this by having the winnings go to charitable foundations - but why should this be necessary? Chris,

You are making sense. I think the overall test of economics is in some ways vague - but thats its a good guiding principle. I don’t think you’re going off topic that far - this is an area that simply needs more hashing out, and

“Is this for entertainment?” is an excellent additional question. It might actually be better opener than economic value. For example, many of the bets monitored by the Long Now foundation

http://www.longbets.org/predictions

address issues that are important (i.e. “you are immortal”), but are too vague or too powerful to have much real economic value to a single person/entity. I hesitate to call them ‘entertainment’ as the whole point is to encourage discussion on the topics listed. You could easily create interesting predictive markets around some of the ‘bets’. Long Now solves the ‘gambling’ part of this by having the winnings go to charitable foundations - but why should this be necessary?

]]> By: Chris Masse http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-19 Chris Masse Thu, 05 Oct 2006 14:28:50 +0000 http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-19 From Mike Sankowski's comment, I would further his point and would like to see a "predictive test", which would distinguish between entertainment-only gambling (bookmakers) and speculative prediction markets. Am I making sense? (Maybe somebody should start a brand-new blog post on my proposal, because I'm carrying away Paul Tetlock's original topic.) From Mike Sankowski’s comment, I would further his point and would like to see a “predictive test”, which would distinguish between entertainment-only gambling (bookmakers) and speculative prediction markets.

Am I making sense?

(Maybe somebody should start a brand-new blog post on my proposal, because I’m carrying away Paul Tetlock’s original topic.)

]]> By: Michael Sankowski http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-16 Michael Sankowski Thu, 05 Oct 2006 13:17:51 +0000 http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-16 This is a huge flaw in how the CFTC operates on this particular issue, I agree Jason. We've talked about the legislative event products before - while difficult to implement, they would be hugely beneficial. There might be just too much opportunity to cheat for these to be sacnctioned by any governmental body. That said, I think the test proposed by Robert and Paul is a simple but effective test. It is good because it seperates trading from gambling - not that gambling is bad, but that gambling fullfills a different purpose. At the very least, it provides the first step to evaluation on how the particular product should be regulated. If it passes this economic test - its a CFTC or SEC style issue. From there you can make further distinctions about the viability of the proposed contract. If it doesn't pass this economic test, gambling style regulations should be considered. A semi-ironic effect of this test is that products that pass the test would in some ways be less regulated than those that fail this test. This is a huge flaw in how the CFTC operates on this particular issue, I agree Jason. We’ve talked about the legislative event products before - while difficult to implement, they would be hugely beneficial. There might be just too much opportunity to cheat for these to be sacnctioned by any governmental body.

That said, I think the test proposed by Robert and Paul is a simple but effective test. It is good because it seperates trading from gambling - not that gambling is bad, but that gambling fullfills a different purpose. At the very least, it provides the first step to evaluation on how the particular product should be regulated. If it passes this economic test - its a CFTC or SEC style issue. From there you can make further distinctions about the viability of the proposed contract. If it doesn’t pass this economic test, gambling style regulations should be considered.

A semi-ironic effect of this test is that products that pass the test would in some ways be less regulated than those that fail this test.

]]> By: Jason Ruspini http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-7 Jason Ruspini Tue, 03 Oct 2006 18:49:26 +0000 http://www.midasoracle.org/2006/10/03/gambling-and-a-new-approach-to-regulating-information-markets/#comment-7 Unfortunately, the CFTC will be reluctant to approve precisely the sort of contracts that most interest us - those on policy events. I was told by someone at an exchange that the CFTC said they would approve a presidential election market, but not a market tied to a legislative event. The fact that the latter has more direct hedging utility (of taxes or subsidies, for example) points to a structural flaw in the CFTC. The CFTC relies on Congress for funding and is an unusual "sunset" agency that must be reauthorized by Congress every five years. Thus they need to avoid crossing the legislature in any way. But hopefully their outlook can be swayed over time. Contact from someone at AEI-Brookings certainly wouldn't hurt. Unfortunately, the CFTC will be reluctant to approve precisely the sort of contracts that most interest us - those on policy events. I was told by someone at an exchange that the CFTC said they would approve a presidential election market, but not a market tied to a legislative event. The fact that the latter has more direct hedging utility (of taxes or subsidies, for example) points to a structural flaw in the CFTC. The CFTC relies on Congress for funding and is an unusual “sunset” agency that must be reauthorized by Congress every five years. Thus they need to avoid crossing the legislature in any way.

But hopefully their outlook can be swayed over time. Contact from someone at AEI-Brookings certainly wouldn’t hurt.

]]>