Daily Archives: May 21, 2008

Protecting Private Prediction Markets

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My draft paper, Private Prediction Markets and the Law, offers a variety of detailed suggestions about how to protect the former from the latter. Specifically, I offer strategies for avoiding the scope of CFTC regulation, for discouraging liability for illegal insider trading, and for ensuring that a private prediction market does not offer gambling. Because I&#8217-ve already blogged about the CFTC angle several times, I&#8217-ll pass over that topic. Here, though, is my conclusion about how to guard against illegal insider trading and gambling laws:

Publicly-traded firms subject to U.S. law can minimize the risks of illegal insider trading by either making public all prices and claims traded on their prediction market or by:

  • Keeping trading by traditional insiders separate from trading by others-
  • Broadening safeguards against illegal insider trading to cover all traders-
  • Treating the market&#8217-s claims and prices as trade secrets- and
  • Seeding the market with decoy claims and prices.

Although the skill-based trading emphasized on private prediction markets should in theory remove them from the scope of gambling regulations, a prudent firm could help to ensure that result by:

  • Forbidding traders from investing their own funds in the market- and
  • Requiring its agents to participate in its market.

As should perhaps go without saying (but as hereby will not), any firm implementing these legal strategies should back them up with ample record-keeping. Each person who trades on a firm&#8217-s market should, for instance, receive clear notification that the market does not deal in CFTC- or SEC-regulated instruments, and that it does not offering services subject to oversight by any state gambling commission. Better yet, traders should be required to access the market only through a click-through agreement in which, among other things, they consent to that stipulation.

[Crossposted at Agoraphilia and Midas Oracle.]

Previous blog posts by Tom W. Bell:

  • Let’s Tell the CFTC Where to Go.
  • Let Prediction Markets Fight Terrorism.
  • Building Exits into CFTC Regulation
  • Insider Trading and Private Prediction Markets
  • Getting from Collective Intelligence to Collective Action
  • Quake Markets
  • Presentation of Private Prediction Markets’ Legality Under U.S. Law

If you want to increase the absolute accuracy of the outputs of the prediction markets, try (if you can) to increase the quality of the inputs.

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Wanna better political prediction markets? Ask Gallup to generate better polls &#8212-because that&#8217-s what traders eat for breakfast.

I have been telling that to Barry Ritholtz &#8212-but he stays on his position.

Thanks to Barry for listening.

Let&#8217-s move on to another polemique.

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Putting the prediction markets under the big crowdsourcing tent

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Via Keith Anderson (Senior Analyst at RNG)

Chapter 7 – What the Crowd Knows: Collective Intelligence in Action – by Jeff Howe

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He is a Wired journalist.

I prefer stuff written by economists like Robin Hanson, Justin Wolfers, Eric Zitzewitz, Koleman Strumpf, David Pennock, etc.

What&#8217-s the point of having the mainstream media journalists writing their own stuff when we can cite the people listed above????

I believe in the &#8220-In His/Her Own Words&#8221- principle.

Enough with the journalists. I&#8217-m fed up by them.

The Internet enables us to access directly the people who know. Let&#8217-s bypass the journalists. Let&#8217-s bulldozer this unnecessary filter.

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Previous blog posts by Chris F. Masse:

  • A second look at HedgeStreet’s comment to the CFTC about “event markets”
  • Since YooPick opened their door, Midas Oracle has been getting, daily, 2 or 3 dozens referrals from FaceBook.
  • US presidential hopeful John McCain hates the Midas Oracle bloggers.
  • If you have tried to contact Chris Masse thru the Midas Oracle Contact Form, I’m terribly sorry to inform you that your message was not delivered to the recipient.
  • THE CFTC’s SECRET AGENDA —UNVEILED.
  • “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
  • Meet professor Thomas W. Malone (on the right), from the MIT’s Center for Collective Intelligence.

FINALLY, THE PREDICTION MARKETS ARRIVE IN GREAT BRITAIN.

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The image above is static &#8212-it&#8217-s a screen shot of the chart widget, not the chart widget itself. (I haven&#8217-t had access to their code, see, so I am not able to embed it here for you.) To view their updated widget, right-click on the image above, and open the link into a new browser tab.

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  1. First time I see a big UK newspaper associates &#8220-BetFair&#8221- with the term &#8220-prediction markets&#8221-.
  2. Their explainer is quite acceptable.
  3. That is a great step for BetFair. Congrats.
  4. I&#8217-d explain things differently &#8212-and I dislike that they suggest that the prediction markets can greatly outperform the polls, described as not &#8220-accurate enough&#8221-. Pollsters do the best they can, it seems to me.
  5. The output that BetFair hands out and the journalists seek are probabilities (expressed in percentages) &#8212-not those damn decimal/digital odds.
  6. The chart widget they use is crappy. I already discussed it. It has usability problems with FireFox. It does not go into feeds. And it&#8217-s not readable enough. Look at the alternative, just below. (The only reason those idiots of journalists are using that crappy widget is that BetFair customized it for them, by putting their fucking newspaper trademark on top of the widget.)
  7. Anyway, the dead-tree, print newspapers are dying, and the future belongs to blog networks. :-D

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The chart below is better&#8230- more readable&#8230- and it goes into feeds&#8230- – But those idiots at the Telegraph won&#8217-t show it to you because it is not pinned with the &#8220-Telegraph&#8221- trademark.

Please, BetFair, do give us the possibility to have a wider time period for the chart data.

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Previous blog posts by Chris F. Masse:

  • A second look at HedgeStreet’s comment to the CFTC about “event markets”
  • Since YooPick opened their door, Midas Oracle has been getting, daily, 2 or 3 dozens referrals from FaceBook.
  • US presidential hopeful John McCain hates the Midas Oracle bloggers.
  • If you have tried to contact Chris Masse thru the Midas Oracle Contact Form, I’m terribly sorry to inform you that your message was not delivered to the recipient.
  • THE CFTC’s SECRET AGENDA —UNVEILED.
  • “Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
  • Meet professor Thomas W. Malone (on the right), from the MIT’s Center for Collective Intelligence.