Bryan Caplan and David Henderson  

Prediction Markets?

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I'm a fan of Hanson's idea markets. Imitation as flattery: I put together a Marsden grant proposal (New Zealand's NSF) to start up election stock markets here that would subsequently be expanded into policy and decision markets. Unfortunately, the grant proposal didn't make it through this time but I'm hoping to improve the draft proposal and send it through again for next year's funding round. The Commerce folks here ruled that Unlisted, an exchange trading shares in small companies, could operate as an unregistered securities trading facility -- essentially, the market was deemed too small to be worth worrying about. Idea markets here could find cover under that ruling.

Given that it's always been a bit dicey as to whether those markets would count as betting or futures markets, I wonder what this will mean for Hanson markets in the US:

Online gambling just got riskier. House of Representatives lawmakers on July 11 passed antigambling legislation that could make it difficult for U.S. gamblers to carry out transactions online.

If passed, the Internet Gambling Prohibition and Enforcement Act could deal a blow to the online betting industry. It explicitly bans Internet gambling, prohibits online poker sites and other betting companies from "knowingly accepting" money from U.S.-based customers, and encourages financial institutions to deny Internet gambling transactions. It does not affect horse racing.

If this passes the Senate, will it affect trading on Tradesports? They've previously sought cover under CFTC as an exempt board of trade; Chris Masse is betting that it won't have much effect because it won't add new constraints. I'd thought, though, that part of the bill would work to stop money from going to third party payment systems that dealt with online gambling outfits. At least, that's what I thought Ebay had in mind when it lobbied for the legislation (recall that Ebay owns PayPal).

If Tradesports were to open book on whether the bill would pass through the Senate, would it be constrained against paying out to successful American-based punters?


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COMMENTS (3 to date)

Hello to all,

Will the anti-Internet gambling bill passes the U.S. Senate?

TradeSports is organizing a new prediction market:

QUOTE

New US Law that addresses Internet Gambling by 31Jan07

The contract(s) will be expired at 100 if (including but not limited to):
The 109th US Congress passes a bill and the US President signs a new law that amends the federal criminal code to prohibit persons engaged in the business of betting or wagering from knowingly accepting credit, electronic fund transfers, checks, drafts, or similar instruments, or the proceeds of any other financial transaction in connection with unlawful Internet gambling. The law must be signed on or before 11:59:59pm ET on the date specified in the contract.

UNQUOTE http://www.tradesports.com/aav2/trading/tradingHTML.jsp?evID=55670&eventSelect=55670&updateList=true&showExpired=false

caveatBettor writes:

Here are 4 reasons why the Internet Gambling Prohibition Act is poor law.

http://caveatbettor.blogspot.com/2006/07/some-reasons-why-internet-gambling.html

caveatBettor writes:

An excerpt that might be better suited for this blog's audience is

#4 Regulated gambling on the internet will effectively reduce illegal gambling elsewhere
This may not sound very libertarian, which hopefully is out of general character for me on domestic issues. But illegal markets are generally distorted (as are regulated markets, of course). They are also difficult to prosecute, as transactions can take place in dark alleyways with unmarked bills involved. And they are expensive for the state: how many undercovers does it take to shutdown an illegal market? And if the answer is "too many", why have the law in the first place?

See, if the government doesn't take its laws seriously, it sends a confusing signal to its citizens: You are electing and paying us to make and enforce laws on your behalf, but its really just a boondoggle.

A legal supply of online gambling sites accomplishes two things, at least for a government trying to enforce good legislation: One, it diverts participants away from illegal gambling markets, which tend to price higher risk premiums into transactions. The illegal market is creatively destroyed. Two, just as in securities markets (a corollary to Reason #2, above), electronic transactions and events can be stored and investigated without hiring a brigade of cops and transporting them here and there. Just hire a surveillance technologist from an exchange for a few weeks.

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