Steve Levitt of Freakonomics makes sense on prediction markets.

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Prawf Steve Levitt explains on his blog, Freakonomics, why he declined to sign the economists’ petition on prediction markets:

[...] I didn’t think the letter went far enough. It attempts to draw a sharp distinction between prediction markets created by academics for research and other kinds of markets. A subtle implication of that distinction is that the government has some legitimate role in restricting access to prediction/gambling markets more generally. To me, there is no difference between a “prediction” market and a “gambling” market. If there is demand for people who either want financial risk surrounding an event or want to hedge risk, why should the government get in the way? It doesn’t matter whether it’s the value of a bond, a share of stock, a presidential election, a firm’s likelihood of hitting its quarterly numbers, or the chances that the White Sox will win the pennant. In general I am not much of a libertarian, but our government’s policy towards gambling is completely idiotic and rife with internal contradictions. (Case in point: A state run lottery that pays out fifty cents on the dollar is okay, but U.S. casinos are prohibited from being involved in internet gambling sites).

- Steve Levitt is 100% right here. (The Midas Oracle readers remember that I have expressed similar ideas, and that I have been accused of mixing the noble prediction markets with “gambling” operations.)

- By the way, Steve Levitt is the only blogging economist I know who favors the suppression of tenure for the US academics.

- Robin Hanson, Justin Wolfers, Eric Zitzewitz and the others would be better off following Steve Levitt’s wisdom.

Next: Chris Masse’s comment on the Freakonomics’ blog post about the legality of US prediction markets

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UPDATE: Robin Hanson…

Signing a proposal to legalize A but not B, where both A and B are now illegal, does not mean that one would not favor legalizing B.