Tag Archives: event derivatives

The CFTC is going to close the comments in 12 days. We have 12 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).

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THE MIDAS ORACLE TAKES:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

– COMMENTS TO THE CFTC: What to expect from Tom W. Bell and Jason Ruspini

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BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public. Here are the comments sent to the CFTC.

– The Arnold &amp- Porter lawyers explain the meaning of the CFTC&#8217-s concept release on &#8220-event markets&#8221-. &#8212- (PDF file)

– What Vernon Smith told the CFTC.

– American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

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2 MILLION TRADES LATER: Inklings play-money prediction markets are accurate -too.

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So, just like flipping a coin, if Inkling told you something has a 15% probability of coming true, you can&#8217-t just look at one outcome (i.e. one coin flip). You need to look at multiple scenarios where Inkling said something would happen 15% of the time. If those things actually come true, 15% of the time, Inkling is doing well at this.

PREDICTION MARKETS: Robin Hanson & Justin Wolfers

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I have been chatting with a prediction market practitioner (I won&#8217-t tell you who, and no, it&#8217-s not whom you think of) &#8212-shooting the breeze, and talking about the current state of the prediction market industry&#8230- taking about things and people&#8230- talking up some people&#8230- and badmouthing others ( :-D ).

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At the end, the conversation barged on the issue of &#8220-advisory boards&#8220-. And he told me that Robin Hanson and Justin Wolfers have helped him TREMENDOUSLY &#8212-in terms of solving problems with new software features, case studies, applied research, etc.

Wow.

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The CFTC is going to close the comments in 13 days. We have 13 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).

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PREVIOUSLY:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

–

BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public.

– Arnold &amp- Porter lawyers explain the meaning of the CFTC&#8217-s concept release on &#8220-event markets&#8221-. &#8212- (PDF file)

– American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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APPENDIX:

Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

– How the neo-cons drove the United States of America into the unecessary Iraq war

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Let Prediction Markets Fight Terrorism.

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The Commodity Futures Trading Commission (CFTC)&#8217-s recent request for comments about the regulation of prediction markets includes a number of specific questions. I am not sure whether I will manage to write up answers to all of them before the July 7 deadline, but question in particular—question 14—has attracted my attention. The CFTC there asks, &#8220-Should certain underlying events or measures&#8211-such as those based on assassinations or terrorist activities—be prohibited altogether due to the social perception and impact of such events? What statutory or other legal basis would support this treatment?&#8221-

I answer the first part of question 14, &#8220-No,&#8221- (and thus need not answer the second part). I doubt that the CFTC wants to hear that sort of reply, frankly- I instead suspect that it wants a legal excuse to avoid the sort of political firestorm that followed the Pentagon&#8217-s proposal to create a Policy Analysis Market that included claims about assassinations and terrorist events. My draft answer to question 14 explains why I&#8217-m willing to risk disappointing the CFTC:

The CFTC should not forbid trading in claims based on assassinations, terrorist activities, or other criminal acts. Because event markets would offer only relatively thin and traceable trading, they would not offer an attractive investment option to anybody planning to profit from wrongdoing. A would-be terrorist would risk revealing both his plans and his identity if, for instance, he invested in a contract predicting another 9/11. He would instead find it more safe and profitable to simply short certain publicly traded stocks.

Furthermore, event markets in terrorist or criminal acts might benefit the public by revealing life-saving information. Suppose, for instance, that an anthropologist&#8217-s study of corrido culture convinced her that narcoterrorists had begun planning military raids on border checkpoints in Arizona and California. If she had the opportunity to buy terrorist event claims, she might both profit from her research and tip us all off about looming trouble. Sound public policy suggests that we should encourage that sort of trading—not forbid it.

To judge from their reactions to the Policy Analysis Market proposed by the Pentagon in 2003, politicians might need to learn more about the benefits of using trading to help predict assassinations or other terrorist events. That poses a public relations problem, however—not a legal one. The CFTC thus has no sound reason to presumptively forbid trading in contracts related to such events.

Notably, my answer to question 14 differs sharply from the answer offered by Jed Christiansen. He said, &#8220-There should never be any incentive to break a law, so there should never be any contracts that would pay someone if a law was broken.&#8221- I disagree, of course, but I thank him for stimulating me to offer an alternative take.

[Crossposted at Agoraphilia and Midas Oracle.]

Who will write to the CFTC?

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CONFIDENTIAL:

&#8220-The Law Professor&#8221-, &#8220-The Brain&#8221-, and &#8220-The Blogger&#8221- are among those who will each send a comment to the CFTC in the coming 2 weeks.

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UPDATE: This econ guy will write to the CFTC, too.

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UPDATE: Indeed, he did&#8230- brightly.

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The CFTC is going to close the comments in 16 days. We have 16 days left to convince the CFTC to accept FOR-PROFIT prediction exchanges, and counter the evil petition organized by the American Enterprise Institute (which has on its payroll Paul Wolfowitz, the bright masterminder of the Iraq war).

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Paul Wolfowitz&#8217-s profile at the American Enterprise Institute

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PREVIOUSLY:

– CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

– In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

–

BACKGROUND INFO:

– CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public.

– American Enterprise Institute’s proposals to legalize the real-money prediction markets in the United States of America

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NOT-FOR-PROFIT… or… FOR-PROFIT… That is the question.

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The dilemma goes like this:

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  1. If the CFTC allows for-profit prediction exchanges &#8211-&gt- that&#8217-s a good step forward (even though sports are excluded from the legal offerings)-
  2. If the CFTC allows only not-for-profit prediction exchanges &#8211-&gt- that&#8217-s a micro step forward (but still positive in the eyes of many).

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BACKGROUND INFO:

CFTC’s Concept Release on the Appropriate Regulatory Treatment of Event Contracts&#8230- notably how they define &#8220-event markets&#8221-, how they are going to extend their &#8220-exemption&#8221- to other IEM-like prediction exchanges, and how they framed their questions to the public.

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UPDATE: In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

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Will the CFTC allow FOR-PROFIT prediction exchanges to deal with event markets?

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The feedback I have received about my speculative post is that I put too much weight into the CFTC requesting that the prediction exchanges organizing &#8220-event markets&#8221- (event derivative markets that can&#8217-t be used for hedging risks) be not for profit &#8212-as the Iowa Electronic Markets is.

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Just below, in bold, are the phrase and the word I&#8217-m told I have mis-read.

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CFTC – (PDF file):

CFTC&#8217-s Concept Release on the Appropriate Regulatory Treatment of Event Contracts

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D. Legal Implementation

16. Is it appropriate for the Commission to direct certain or all event contracts onto markets that are regulated differently from and perhaps less stringently than DCMs? For example, it may be warranted or necessary to treat event markets that aggregate information solely for academic or research purposes, event markets set-up for internal corporate purposes, or event markets that offer exceedingly low notional value contracts to traders differently than markets that possess the attributes of traditional DCMs.

19. What are the benefits and drawbacks of permitting certain event markets to operate pursuant to Commission established conditions that are similar to the conditions under which the IEM operates?

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UPDATE: CALL TO ACTION: Let&#8217-s fight so that the CFTC allows the FOR-PROFIT prediction exchanges to deal with &#8220-event markets&#8221-.

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UPDATE: NOT-FOR-PROFIT&#8230- or&#8230- FOR-PROFIT&#8230- That is the question.

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UPDATE: In the for-profit vs not-for-profit debate, our prediction market luminaries, doctored by Bob, are on the wrong side of the issue.

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OPEN-SOURCE PREDICTION EXCHANGE: How Smarkets is going to eat BetFairs lunch -well, they hope.

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TechCrunch UK

There’s an interesting twist – they plan to offer an open API for people to develop their own betting applications and use the Smarkets infrastructure. Their idea is this: users don’t need knowledge of odds or experience. It’s more about speed and entertainment than sports.

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Smart idea, but how will this crack the chicken-and-egg problem that every prediction exchange (betting exchange) has at inception? How will this help fighting BetFair&#8217-s network effect? What makes you think that BetFair and TradeSports don&#8217-t offer &#8220-speed and entertainment&#8221-? Do people really want to trade sports or &#8220-develop their own betting applications&#8221-? What would prevent BetFair and TradeSports to do the same?

Anyway, best wishes to UK-based Yankees Jason Trost and Hunter Morris. :-D

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Smarkets

Smarkets – Their web framework. – PDF file

Smarkets – Open-source software they use.

Smarkets – Press release

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