OneSeason.com

Michael Abramowicz:

This is a prediction market in which one is not predicting any particular events. Rather, one can buy or sell “Synthetic Ownership Interests,” which are essentially ownership rights in nothing but the name of a team or player. As I discuss in my book (http://predictocracy.org/blog/?p=17), there is at least some evidence that a variant on this kind of market can function reasonably well, even though it is essentially a “Keynesian beauty contest.” Pricing is ultimately arbitrary, but players in this market will look for “focal point” relative prices of sports players and teams, and therefore should be able to profit by accurately forecasting events that affect such focal points (such as team wins).

What is interesting legally is the site’s claim that because shares are not redeemed based on particular events, there is no liability for illegal gambling. There is some reason to think that this claim may have merit. After all, if people want to trade a limited number of baseball cards, and those cards rise and fall in value based on public perception about teams’ welfare, there’s nothing illegal about that. So why should there be anything illegal about trading the virtual equivalent of a baseball card? The question is whether this argument will work. There is at least some chance that courts, interpreting the gambling statutes in the tradition of the common law, will hold that despite the mechanics of this market, in practice it is a means for people to bet on sports and therefore still constitutes gambling. My own view is that this is a weak argument, but one should not underestimate the willingness of courts to adopt weak arguments to stop loopholes.

A major limitation of OneSeason’s approach may be its legal saving grace: shares trade in perpetuity. The result is that focal point prices are likely to be based on long-term greatness. I might buy a Rays share because I think that the Rays will win the World Series, but because the long-term greatness of the Rays is only slightly affected by their performance this year, prices might not change that much. The site might try to counter this by issuing SOI’s based on teams in particular time frames (e.g., a year or even a particular game). But that probably wouldn’t work, at least absent some mechanism by which the site buys back the SOI’s, because in the long run people would likely not want to pay much to hold old SOI’s. And if it did work, then that would probably increase the chance of legal liability.

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Predictocracy – Market Mechanisms for Public and Private Decision Making

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