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It wasn’t about the predictions.
Let’s not confuse media visibility with utility. Aside from the depressed Obama-to-win prices on one exchange, prediction market and polling aggregation results for the 2008 election were essentially the same using squared errors. Despite his insane schematics, Emile Servan-Schreiber has a good point about capturing the interest of the public, something that nerdy [...]
InTrade offers an explanation of strange trading.
Intrade has made a statement on the unusual trading that many have noted and alleged to be manipulative. The statement suggests that the price action is mostly attributable to a single firm, a hedger “using our markets in good faith and in the ordinary course of their business.”
The first company that comes to mind [...]
The gamble of downplaying manipulation
Whether it is GOP bias, manipulation, or simply confident well-funded traders, there is some agreement that the Intrade presidential markets have been affected by “non-informational” trading. To be clear, this is not a condemnation of Intrade. The exchange’s liquidity and trader diversity are hamstrung by archaic laws in the U.S., the continuation of [...]
Positives for prediction markets
Satyajit Das, in his 2006 book:
Dealers on exchanges charge clients a fixed commission to trade; the cartel of dealers means that clients have no choice other than to deal through them. The dealers are fierce advocates of competition except where it affects them.
In the OTC markets, dealers are more creative — they ensure that [...]
Regulated U.S. election markets might not be so hard.
Based on the arguments Hedgestreet presented in its response to the CFTC on event markets, the exchange has a fairly strong justification to self-certify and begin trading election futures, soon. While most event markets trade as binary options, and the CFTC has flexible discretion over options per 7 U.S.C. § 6c(b), the Commission does not [...]
My response to the CFTC on event contracts
Here is my response to the CFTC’s “Concept Release on the Appropriate Regulatory Treatment of Event Contracts.” I appreciate this opportunity to help in working towards regulated prediction markets in the US, and I thank the Commissioners for it.
Given the political implications of the rise in commodity prices, this is not the best environment in [...]
The CFTC safe-harbor option for event markets
The recommendation for safe-harbor of a group of influential economists to the CFTC aims squarely at the 4(c)3(K)* clause of the Commodity Exchange Act. The CFTC may approve a public interest exemption under 4(c) provided that the affected contracts are traded only between “appropriate persons”. 4(c)3(k) is the only qualification that would accommodate “retail” [...]
CFTC regulation and election contracts
Insofar as event markets are within the CFTC’s jurisdiction, they would likely be approved as “excluded commodities”. Here is the relevant part of the definition within the Commodity Exchange Act:
(iv) an occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or level of a commodity not described [...]
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