Economists Want Legal Protection For Prediction Markets

Legal Issues

from the going-legit dept

There continues to be a lot of interest in prediction markets as a way to tap the wisdom of crowds, but for the most part, much of the interest in them is academic, as there’s been a lack of practical examples of their use. One of the big problems is that in the US it’s legally difficult to set up a real-money exchange, and so much of what we have is based on play money, which doesn’t make much sense for something that’s supposed to be a market. The culprit is the government’s attitude towards online gambling, as these sites are treated just like poker sites are. So a group of economists (including Nobel-laureates Kenneth Arrow and Thomas Schelling) has penned an open letter to US regulators encouraging them to lower the barriers to entry to create such an exchange. Currently, one possible way to legally open such a site is to get a special exemption from the Commodity Futures Trading Commission (CFTC), but it’s rather difficult, so economists are pushing to get the CFTC more leeway in the approval process. It’s likely, however, that the request will fall on deaf ears, since this issue probably isn’t much of a priority to many politicians. That’s unfortunate, because until these markets are more widespread, we won’t know useful they could be for business. In the meantime, it’s as though wikis were illegal, and academics were forced to discuss whether collaborative, web documents might theoretically have some value. Of course, this is far from the only instance of anti-gambling laws having a perverse, unwanted effect.