Just before Phase I commenced, I had designed and implemented a combinatorial market maker, and proposed that PAM use it. Charles Polk, president of Net Exchange, chose instead to refit their existing software to this application. [*] After the simulation failure at the end of Phase I, I threatened to quit. John Ledyard, CEO and founder of the firm, then got more involved in the project and proposed we run a laboratory horse race, between standard markets, my market maker, and a new combinatorial call market John would design. I designed the experimental environment in which the mechanisms were compared, Net Exchange created new software to run the mechanisms, and John ran the experiments with Caltech students.

Robin Hanson’s MSR won, of course:

In the interim phase, the Net Exchange team prepared for and ran lab experiments comparing two new combinatorial trading mechanisms with traditional mechanism. These experiments, where six traders set 255 independent prices in five minutes, found that a combinatorial market maker was the most accurate.

And today, the Market Scoring Rules (MSR) is the most popular mechanism design (and automated market maker) for enterprise prediction markets.

[*] CONCLUSION: Legacy is a big obstacle to innovation. Wanna innovate? Get rid of the past.

A fantasy sport (also known as rotisserie, roto, or fairy-tale sport; or owner simulation) is a game where fantasy owners build a team that competes against other fantasy owners based on the statistics generated by individual players or teams of a professional sport. Probably the most common variant converts statistical performance into points that are compiled and totaled according to a roster selected by a manager that makes up a fantasy team. These point systems are typically simple enough to be manually calculated by a “league commissioner.” More complex variants use computer modeling of actual games based on statistical input generated by professional sports. In fantasy sports there is the ability to trade, cut, and sign players, like a real sports owner.

It’s estimated by the Fantasy Sports Trade Association that 19.4 million people age 12 and above in the U.S. and Canada play fantasy sports and 34.5 million people have ever played fantasy sports. A 2006 study showed 22 percent of U.S. adult males 18 to 49 years old, with Internet access, play fantasy sports. Fantasy Sports is estimated to have a $3-$4 Billion annual economic impact across the sports industry. Fantasy sports is also popular throughout the world with leagues for soccer (known as football outside of the United States), cricket and other non-U.S. based sports. [...]

Despite the economic instability, fantasy sports started to become a mainstream hobby. In 2002, the NFL found that average male surveyed, for example, spent 6.6 hours a week watching the NFL on TV; fantasy players surveyed said they watched 8.4 hours of NFL per week. “This is the first time we’ve been able to demonstrate specifically that fantasy play drives TV viewing,” said Chris Russo, the NFL’s senior vice president. The NFL began running promotional television ads for fantasy football featuring current players for the first time. Previously fantasy sports had largely been seen in a negative light by the major sports leagues.

Fantasy sports continued to grow with a 2003 FSTA survey showing 15 million people playing fantasy football and spending about $150 a year on average, making it a $1.5 billion industry. [...]

Unlawful Internet Gambling Enforcement Act of 2006

The Unlawful Internet Gambling Enforcement Act of 2006, which was an amendment to the larger and unrelated Safe Port Act, included “carve out” language that clarified the legality of fantasy sports. It was signed into law on October 13, 2006 by President George W. Bush. The Unlawful Internet Gambling Enforcement Act makes transactions from banks or similar institutions to online gambling sites illegal, with the notable exceptions of fantasy sports, online lotteries and horse/harness racing.

The bill specifically exempts fantasy sports games, educational games, or any online contest that “has an outcome that reflects the relative knowledge of the participants, or their skill at physical reaction or physical manipulation (but not chance), and, in the case of a fantasy or simulation sports game, has an outcome that is determined predominantly by accumulated statistical results of sporting events, including any non-participant’s individual performances in such sporting events…” [...]

Criticism

Some sports writers criticize fantasy sports, especially those involving team sports, of focusing too much on statistics. A player on a real team might be a team player and help his/her team win championships, but in fantasy sports that team play may not matter as much as having good individual statistics.

There was a bill presented before Congress in 1999 that would have prevented public fantasy sports businesses, the contention being that fantasy sports is in fact a form of sports gambling. That bill failed, and eventually a ‘carve-out’ was created for the fantasy sports business. In 2006, the United States congress passed the “Security Port Act”, which prohibits credit card transactions and other electronic transfers to online gambling operators; the bill includes an exemption for fantasy sports.

Players who enjoy competing in fantasy sports leagues often do very well with sports related prediction games by using their team statistical knowledge to predict the outcome of a sporting event. [...]

Developing… (as would say our Deep Throats).

It seems like we have consideration, prize and chance here – involving sports no less. What about fantasy sports? Could YooNew be considered a type of fantasy sports league and thus exempted under UIGEA? Here is the relevant exemption from the law:

(ix) participation in any fantasy or simulation sports game or educational game or contest in which (if the game or contest involves a team or teams) no fantasy or simulation sports team is based on the current membership of an actual team that is a member of an amateur or professional sports organization (as those terms are defined in section 3701 of title 28) and that meets the following conditions:

(I) All prizes and awards offered to winning participants are established and made known to the participants in advance of the game or contest and their value is not determined by the number of
participants or the amount of any fees paid by those participants.
(II) All winning outcomes reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical
results of the performance of individuals (athletes in the case of sports events) in multiple real-world
sporting or other events.
(III) No winning outcome is based–

(aa) on the score, point-spread, or any performance or performances of any single real-world team or any combination of such teams; or
(bb) solely on any single performance of an individual athlete in any single real-world sporting or other event.

It seems that YooNew is not a sports fantasy game so defined, because the winning outcomes are based on the fortunes of real-world teams.

On a more positive note, the above language is pretty broad, especially the part about accumulated results. This is reasonable because when results are accumulated chance is less of a factor, both for the performing individual and the predictors.

Wouldn’t someone’s political nomination be determined by their “accumulated statistical results” in primaries (“other events”)? If you argue that the nomination is a single event that takes place one night, what if you closed the market the day before? How about inauguration futures instead of election futures? That is, even if an election is considered a single event, to get to the inauguration an individual must have accumulated results in multiple events.

As you can see, the fantasy sports and “educational game” exemption invites a lot of hair-splitting. How would “team” be defined for non-sports questions? If the “prize” for a given bet is 1000 $10 contracts, was that value determined by the number of participants? Would it make a difference if the prize was given by a central party or by many counterparties on an exchange?

I don’t expect these ideas to make any difference, as they are only ideas, and given how aggressive the DOJ has been in the past, people should be well-warned about being cavalier with “legal hacks”.

The information will probably end up saving lives, as we can more efficiently allocate finite resources to global warming research and reduction (vs. preventative healthcare, disease control, micro loans, etc.). For instance, we spend a lot of money on the AIDS pandemic in Africa, but polluted water and malaria each claim more victims. The investment allocations could be tweaked, quite a bit.

In today’s WSJ, Goddard Institute of Space Studies finds that:

The latest twist in the global warming saga is the revision in data at NASA’s Goddard Institute for Space Studies, indicating that the warmest year on record for the U.S. was not 1998, but rather 1934 (by 0.02 of a degree Celsius).

Canadian and amateur climate researcher Stephen McIntyre discovered that NASA made a technical error in standardizing the weather air temperature data post-2000. These temperature mistakes were only for the U.S.; their net effect was to lower the average temperature reading from 2000-2006 by 0.15C.

The new data undermine another frightful talking point from environmentalists, which is that six of the 10 hottest years on record have occurred since 1990. Wrong. NASA now says six of the 10 warmest years were in the 1930s and 1940s, and that was before the bulk of industrial CO2 emissions were released into the atmosphere.

Those are the new facts. What’s hard to know is how much, if any, significance to read into them. NASA officials say the revisions are insignificant and should not be “used by [global warming] critics to muddy the debate.” NASA scientist Gavin Schmidt notes that, despite the revisions, the period 2002-2006 is still warmer for the U.S. than 1930-1934, and both periods are slightly cooler than 1998-2002.

Still, environmentalists have been making great hay by claiming that recent years, such as 1998, then 2006, were the “warmest” on record. It’s also not clear that the 0.15 degree temperature revision is as trivial as NASA insists. Total U.S. warming since 1920 has been about 0.21 degrees Celsius. This means that a 0.15 error for recent years is more than two-thirds the observed temperature increase for the period of warming. NASA counters that most of the measured planetary warming in recent decades has occurred outside the U.S. and that the agency’s recent error would have a tiny impact (1/1000th of a degree) on global warming.

If nothing else, the snafu calls into question how much faith to put in climate change models. In the 1990s, virtually all climate models predicted warming from 2000-2010, but the new data confirm that so far there has been no warming trend in this decade for the U.S. Whoops. These simulation models are the basis for many of the forecasts of catastrophic warming by the end of the century that Al Gore and the media repeat time and again. We may soon be basing multi-trillion dollar policy decisions on computer models whose accuracy we already know to be less than stellar.

What’s more disturbing is what this incident tells us about the scientific double standard in the global warming debate. If this kind of error were made by climatologists who dare to challenge climate-change orthodoxy, the media and environmentalists would accuse them of manipulating data to distort scientific truth. NASA’s blunder only became a news story after Internet bloggers played whistleblower by circulating the new data across the Web.

Cross-posted from CavBet

Prediction Markets und Konsensfindung für effiziente Entscheidungen

Prognosemärkte: Prediction Markets – Verteiltes Wissen nutzen
Das Prognose-Modul der Software pro:kons liefert Vorhersagen spezifischer zukünftiger Ereignisse durch Meinungsaggregation. Es bedient sich dabei der Simulation von virtuellen Börsen (Prediction Markets) auf denen die Zukunftswerte von Produkten, Ereignissen, Personen, politische Parteien, oder anderen realen Gegebenheiten gehandelt werden.
Der Grundgedanke basiert auf der These von Professor Hayek, einem österreichischen Nobelpreisträger der Wirtschaftswissenschaften, wonach Preise Indikatoren für verteilte Informationen sind. Dies gilt auch für virtuelle Börsen, an denen der Preis das aggregierte Wissen aller Marktteilnehmer widerspiegelt – die Prognose.
Mehr über das Prognosemodul

Konsensfindung: Wissensmanagement – kosteneffizient nachhaltige Entscheidungen treffen
Das Konsensfindungsmodul von pro:kons ist eine Software, die Entscheidungsfindungs- und Abstimmungsprozesse in Organisationen, Unternehmen, Behörden und Verbänden effizient unterstützt und beschleunigt.
ProKons ermöglicht eine web-basierte Darstellung und Durchführung, aber auch die Begleitung und Dokumentation von frei definierbaren Entscheidungsprozessen – mit jeweils individuell wählbaren Abstimmungsmodellen.
Entscheidungsfindung im Internet ist orts- und zeitunabhängig. Keine teuren Anfahrtswege und Veranstaltungsorte. Optimale Transparenz und Mechanismen zur Förderung der Sachlichkeit ermöglichen höhere Entscheidungsqualitäten.
Mehr über das Konsensfindungsmodul

Does somebody in the plane speak German??

Google Translate:

Prediction Markets and consent identification for efficient decisions Prognosis markets: Prediction Markets – distribution knowledge use The prognosis module of the software per: kons supplies forecasts of specific future events by opinion aggregation. Thereby by products, events, persons, political parties, or other material conditions avail themselves the future values of the simulation of virtual stock exchanges (Prediction Markets) on those to be acted. The basic idea is based on the thesis of professor Hayek, a Austrian Nobelpreisträger of the economic science, according to which prices are indicators for distributed information. This applies also to virtual stock exchanges, at which the price reflects the aggregated knowledge of all market participants – the prognosis. More over the prognosis module Consent identification: Knowledge management – cost-efficiently lasting decisions meet The consent identification module of per: kons is a software, which supports and accelerates decision-making processes and tuning processes in organizations, enterprises, authorities and federations efficiently. ProKons makes a Web-based representation and execution, in addition, the company and documentation possible of freely definable decision-making processes – with individually in each case selectable tuning models. Decision making in the Internet is local and time-independently. No expensive journeys and places of event. Optimal transparency and mechanisms for the promotion of the Sachlichkeit make higher decision qualities possible. More over the consent identification module.

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UPDATE: ProKons have just output a great English-speaking website.

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PREDICTION      CURRENT VALUE      TODAY
On the Job Training/ Learning     91.4%     0.00
e-Learning     88.3%     0.00
Performance Support     85.9%     0.00
Social Networks     81.0%     0.00
Google Searching     72.9%     0.00
Gaming and Simulation     68.0%     0.00
Podcasts     65.5%     0.00
Classroom Training     60.5%     0.00
Unknown Technology/Techniques     51.9%     0.00
Webinars     48.9%     0.00
Video Conferencing     38.7%     0.00
Phone/Mobile     38.5%     0.00
Coaches     27.1%     0.00
Robots     8.2%     0.00

BlogShares was written in early 2003 by Seyed Razavi in his free time. The overall objective of BlogShares is the exploration of an emerging social network while providing an addictive and fun environment for bloggers to join and help add to the worth of the social network. Another one of the purposes of this site was to prove the Power Law theory. Part of this theory is based on the fact that 20% of the population holds 80% of the wealth. This can also be attributed to weblogs, 20% of the blogs contain 80% of all incoming links. BlogShares hits a home run with this theory.

The BlogShares project took off rather quickly and was considered a personal success. The site, however, was a success that would not last. BlogShares suffered from a few serious coding issues that severely hampered the site’s growth and expansion, as well as its speed. At this point, BlogShares was tracking 400K blogs and links. Eventually these took their toll on the BlogShares hard drives and a catastrophic system failure ground BlogShares to a halt. That, bundled with personal reasons, caused Seyed to choose to leave the game. At this time, BlogShares was taken over by its current owner: Jay Campbell, and co-adminned by C. Suburban Wolf (AKA Rob/SubWolf) was brought on almost immediately to help recode the entire site. Once BlogShares was taken out of the beta stages its popularity sky-rocketed. It did have its ups and downs however. The BlogShares team made some changes to certain aspects of the game. Originally, Ideas only produced twice a day and were worth a couple dollars each. Some players even held on to millions upon millions of Ideas. When changes were implemented the prices soared, making many people instant billionaires and trillionaires. Some of the users bailed out at that point, fearing a market crash. Others chose to hold on to their Ideas in hopes that the market could sustain its rapid growth a bit longer. Ultimately this was not the case. Further changes caused the market to crash in a matter of hours, nearly bankrupting some of the richest players in the game. There were some bitter words from some, solace from others. In the end it all worked out for the best.

They also added in a new item: Chips. These items were an answer to the growing number of votes clogging the system, and they revolutionized the way many trades were handled. Today, Chips are the most valuable asset in the game, because with enough of them you can buy anything, win raffles, and purchase text ads for advertising your blog, your philosophy, your politics, your humor … whatever. Some players even offer to purchase a Premium Membership for others in exchange for Chips. Black Friday (November 25, 2005) brought dramatic revaluation (1 to 10,000) of Idea prices and cash value, with no change to share values. While there were legit concerns and complaints about the changes, it completely changed the nature of daily game play from one dominated by Ideas to one fully-inclusive of share trading. In early 2006, an Ideas Math Summit solicited player input toward a new pricing model for Ideas, as well as announced a new Game Improvement Committee (GIC), which works to improve the game and its community, and to ensure that both remain fun and enjoyable for the players.

After testing by the GIC, a premium feature, the Chips Market came online July 24, 2006. The new math was unveiled in late August 2006, adding a new dynamic to the ways players bought and sold ideas. Today, BlogShares has become the most immersive online Stock Market simulation available, as well as the most popular with over 40K active users. Over 17K blogs have been claimed by their owners. Even more amazing is the sheer number of blogs currently tracked: 7.3 million. To this day, BlogShares continues to grow and add new features. The admin and coders work hand-in-hand on a daily basis to keep this site alive, add new features, and improve functionality. BlogShares truly is a success.

Fa=sci=na=ting.

Simply, FASCINATING.

Their log line:

BlogShares is a fantasy stock market for weblogs. Players get to invest a fictional $500, and blogs are valued by incoming links.

Previous: No prediction market bloggers on Blogshares – by our good doctor David Pennock

Managing Director, Hollywood Stock Exchange (HSX) at Cantor Fitzgerald, LP

Specialties:
Prediction markets, virtual stock exchanges, market simulation design and software solutions. Entertainment research and film marketing. TV production and show development.

Chris. F. Masse: Ken Kittlitz, you co-founded the Foresight Exchange (it went by the name “Idea Futures” at the time) in 1994. Would you mind telling me two words on your co-founders? Which ones brought the most into the project? Are you still in touch with them? Do you know what they have become?

Ken Kittlitz: David McFadzean got the ball rolling by bringing one of Robin Hanson’s early prediction market papers to our weekly discussion group. Sean Morgan realized that the WWW, then still in its infancy, would be a great way to create such a market. Mark James, along with Sean, did most of the coding of the initial prototype. Duane Hewitt and myself did most of the work on a paper and presentation that our group presented at a conference the following year.

I’m still in touch only with David; he’s currently a software architect at QuIC, a company that creates financial risk analysis/mitigation products.

CFM: What was the spirit of your group at that time (in 1994). Did “entrepreneurship” mean something for you, guys? Did you envision a commercial venture, or was it just collegians’ play?

KK: Our weekly discussion group was known as the “BS Group” (Biological Simulation, in case you’re wondering), so I’d have to admit that “collegians’ play” is a fair summary. In 1995, we did try to turn it into a commercial venture, which quickly revealed our lack of business experience. We were all techies of one sort or another, and techies often struggle in the business realm.

CFM: Would you mind telling me two words on GMU professor Robin Hanson? How would you introduce him to some of our readers (I pity them) who have never heard of him?

KK: Robin’s one of the smartest people I’ve ever met and, unlike many smart people, not over-specialized. He has deep understanding of a number of fields: artificial intelligence, physics, economics and likely a few others I’m not aware of. He has a habit of coming up with fascinating, controversial ideas, prediction markets being just one example.

CFM: You co-founded this play-money prediction exchange (Foresight Exchange) in 1994. In 1999/2000, Andrew Black and Edward Wray created and launched BetFair in England. BetFair became one of the most successful British start-ups and its two co-founders are now sitting pretty on a small fortune. In hindsight, don’t you think that you should have moved to the U.K. and incorporated the Foresight Exchange there, using real money?

KK: In hindsight, I think that I should have done a massively-leveraged short sale of NASDAQ stocks in March, 2000.

The best way forward is always hard to identify, even with tools like prediction markets…

When we tried to commercialize the original “Idea Futures”, starting a real-money market offshore was certainly something we considered — though at that point, somewhere in the Caribbean seemed the likely venue. Even back then, it seemed likely that prediction markets would be considered a form of gambling, and hence subject to draconian restrictions. The Caribbean can be a nice place to live, but the prospect of never being able to return to North America to visit family and friends was quite a disincentive.

CFM: One thing that strikes me when visiting the Foresight Exchange is that you forbid sports prediction markets, which are very popular on the betting exchanges. Even Bo Cowgill’s group of Googlers trade on sports, sometimes —I believe. Sports trading can be fun. Are you a jock hater?

KK: Not really, but the Foresight Exchange was created primarily to focus on science and technology claims. Having it cluttered with a couple of dozen “tonight’s game” claims per day wasn’t too appealing.

CFM: If I can count, you have more than 12 years of experience in the field of prediction markets. You’ve seen them all, in all colors and shapes. Do you agree with what Robin Hanson said at the Yahoo! Confab, namely that the DARPA’s PAM scandal ignited interest in corporate prediction markets? Was the PAM scandal a “tipping point”?

KK: No. I think the real tipping point was the publication of James Surowiecki’s “The Wisdom of Crowds”. Those of us interested in prediction markets tend to overestimate the PAM controversy’s importance; it was a big deal for us, but only an incremental step in the general public’s awareness of the topic. The interest generated by Surowiecki’s book showed that prediction markets had “arrived” — they weren’t just of academic interest, but instead had real-world applicability.

CFM: Note that the DARPA’s PAM prediction markets was to be public. Which leads to my next question. You and partner David Perry at Consensus Point help Fortune-500 companies setting up and running their own internal prediction markets. Have you ever had the case where one firm opened its corporate prediction markets to contractors and clients?

KK: Some of the firms we deal with are certainly interested in having a fairly wide audience, including customers and contractors, for their markets. I can’t go into specifics at the moment, however.

CFM: How is Consensus Point doing, so far? Can you draw for us the portrait of the firm that wants to use internal prediction markets? Is it always to forecast sales? Do you sense that the requests come from senior executives or from mid-level prediction markets-enthusiast managers?

KK: Consensus Point is doing very well so far. A lot of inquiries do indeed originate from mid-level managers and researchers, but a fair number also come from the executive level. Sales forecasting is a popular application of the market, but project completion times and commodity price forecasting have also proved to be frequent questions.

CFM: Sorry to ask you this question bluntly. Would TradeSports and Betfair make great competitors of Consensus Point if ever they decided one day to sell prediction market services to organizations?

KK: Quite possibly, but it’s certainly not a given. Both companies have great trading platforms, but their expertise is in running real-money, public markets. Corporations aren’t really looking for that sort of domain knowledge when considering how to implement and use a prediction market.

CFM: Would you mind describing in a few words the prediction market services you sell? I guess it’s web-hosted CDA, but are some firms interested in web-hosted MSR?

KK: We offer both hosted and on-site installations of our software, as well as training, analysis and consulting services. As for MSR versus CDA, see below.

CFM: Speaking of Market Scoring Rules, why did you decide to use this design as the engine for the Washington Stock Exchange? What is its main competitive advantage to CDA? How can MSR best be described: “betting” or “simplified trading”?

KK: The line between an MSR and a CDA is thinner than you might think! We have a market maker for each stock that provides liquidity by placing bid and ask orders; this is a convenient way of implementing an MSR within a CDA framework. An MSR really helps to start (and keep) the market going, because people always have a price they can buy or sell at. With an unadorned CDA, the bid/ask spread can be enormous, and trading volumes very thin. This alas, is often the case on the Foresight Exchange.

I’d describe an MSR as allowing for “simplified trading” rather than “betting”, though I suppose it depends on how much thought the person interacting with it puts in!

CFM: Just curious. When a prediction exchange decides to use MSR, does it have to pay fees or royalties to its inventor, Robin Hanson?

KK: I don’t believe so, but Robin is in a far better position to answer that question than I am…

CFM: What is the biggest mistake (if any) you have made since the grand opening of Consensus Point? What did you learn from this big mistake?

KK: No really big mistakes come to mind. Of course, such things are often only obvious in retrospect, so ask me again in a few years.

CFM: What are corporate prediction markets competing against (if any)? Internal polls? Groups of in-house experts? The firm’s executives? Something else?

KK: Generally, the firm’s executives. We haven’t encountered too many cases where firms have been trying to use internal polls as part of their forecasting efforts.

CFM: Are you positive that corporate prediction markets will show something for it? Will the economics literature soon be filled with business cases on how firms can clearly benefit from using internal prediction markets?

KK: Based on my experiences in the field thus far, I’m confident that prediction markets will prove to compare favorably with the other forecasting methods companies use. This isn’t to say that they’ll always yield good information, or be the best thing to use in all situations, but I think they will turn out to be valuable.

Am I positive of this? Not absolutely. But then, I try not to be absolutely positive of anything!

CFM: Now, the question that kills. Tell me frankly. Are corporate prediction markets a “fad” or are they just started?

KK: Great question! I think it largely depends on how the prediction market community presents the ideas. There’s a very real danger that the topic will be over-hyped and, consequently, ultimately dismissed, just as so many other trendy business ideas have been in the past. Today’s darling is often tomorrow’s pariah. That would be a shame, since (obviously) I think the markets have a lot of merit.

Note by “prediction market community”, I’m referring not only to those who create and sell prediction markets and associated services, but also people who blog about the topic, create vortals, etc. Not mentioning any names here .

CFM: Are prediction markets just one forecasting tool, or do they have a bigger function, in your view?

KK: The pragmatist in me says they’re just one tool, albeit a great one. The idealist finds something profoundly appealing in their ability to democratize how information is gathered and, ultimately, how decisions are made. The idealist thinks they’re something more.

As this Act was only recently adopted into law, I do not think its complete interpretation can be known. Nevertheless, I can give some early thoughts from the perspective of Linden Lab. As always, you should note that I am Linden Lab’s lawyer and I cannot provide legal advice to you or to any customer of Linden Lab.

A very brief, and therefore incomplete, description of the Act is that it prohibits *gambling businesses* from accepting *funds or credit* from *designated payment systems* for *unlawful Internet gambling*.

Linden Lab does not operate a gambling business. Linden Lab is an interactive computer service provider of a simulated 3D environment, upon which users engage in activities of their own creation.

Linden Dollars are not money, they are neither funds nor credit for funds. Linden Dollars represent a limited license right to use a feature of the simulated environment. Linden Lab does not offer any right of redemption for any sum of money, or any other guarantee of monetary value, for Linden Dollars. (I recently addressed this in detail here.)

Linden Lab does not operate a designated payment system under the Act. The movement of Linden Dollars, like that of any virtual world asset, is a use of license rights in intellectual property.

The Act does not specifically define whether the simulation of wagering in a virtual world environment is unlawful gambling – although to the extent it is, the Act supports the position that the unlawful gambling is conducted by the parties that place and accept the wager. Accordingly, the liability of the computer service provider is specifically limited under the Act.

The Act was not written specifically to address virtual world services like Second Life. It may be that the laws may continue to evolve to clarify some of these positions one way or the other. And again, it is certainly the case that users of Second Life must seek advice from their own qualified legal counsel for any questions about their own legal positions. Linden Lab cannot and does not provide legal advice to users of Second Life.

Most importantly, as we’ve stated previously, Linden Lab will cooperate with any law enforcement investigation having jurisdiction over these matters. We have invited and will continue to invite law enforcement authorities to review these issues. We are not in the business of playing coy with laws that apply to us. If any law enforcement authority issues a statement to us regarding their interpretation of the Act or any similar law with respect to Second Life, we will publish that statement to our users if permitted to do so under law.

Actual text of act:
http://thomas.loc.gov/cgi-bin/query/z?c109:h.r.4411: (click most recent version posted on that page)

Addendum (from Chris Masse): Is there a contradiction here??

The LindeX permits Second Life Residents to buy and sell Linden Dollars (L$) and exchange them for US Dollars (US$) with ease through the Second Life website.