I really enjoyed attending the Collective Intelligence FOO Camp, sponsored by Google and O’-Reilly Media, last weekend. I’-d been expecting a sort of geek slumber party, and had looked forward to rolling out my awesome Darth Vader impersonation. I was all set to cut loose with a growling, “-I’-m your father, Luke.”- It didn’-t quite come to that, but I still had a blast, meeting lots of smart, informed, articulate, creative, and successful people. Friendly people, too.
I described how to establish the legality of real money, open-access prediction markets under U.S. law. I called my presentation, Getting from Collective Intelligence to Collective Action [PPT file]. In very brief, I proposed this algorithm:
- Set up an enterprise prediction market, make playing it a condition of continued employment, and offer valuable prizes to the best predictors.
- Set up a limited access prediction market, hire a number of independent contractors researchers to play it, pay them a relatively low salary for doing so, and offer valuable prizes to the best predictors.
- Set up an open-access prediction market but require anyone playing it to go through a click-wrap license that creates the sort of independent researcher relationship described at step 2, above.
When and if standing for declaratory judgment obtains, a litigation team should bring suit seeking to establish the legality of the prediction market under U.S. law. The market should be run by a worthy institution and deal only in claims likely to generate large positive externalities. Google.org, for example, might set up a market in earthquake claims and ask for a court’-s blessing.
That strategy would stand a fair chance–-a 75% chance, I’-d say–-of establishing the legality of a great many in-house and (effectively) public prediction markets under U.S. law. The strategy would not impose great costs or risks, though it would take some careful planning and execution, and would almost certainly generate large private and public goods. It might even save lives- we could really use a reliable early-warning system for major earthquakes.
This legalization program would most directly benefit subsidized markets- it would not plainly establish the legality of markets where traders could invest their own funds or hedge against off-market risks. I’-m still working out a legal hack for that step. It will be an easier step to take, however, if we’-ve already made it as far as establishing the legality of open-access, real money prediction markets under U.S. law.
We should still pursue other routes to establishing the legality of prediction markets under U.S. law, of course. It already helps that so many U.S. residents evidently make and lose money on Ireland-based InTrade. That at least goes to show that prediction markets hurt nobody. Getting the CFTC to issue safe-harbor regulations would help, too. All of those routes to public, real money prediction markets in the U.S. merit exploration. Any of them might offer a shortcut to a better, freer future.
[Posted at Agoraphilia, The Technology Liberation Front, and Midas Oracle.]
It would be great to see such a prediction market consultancy organization, but isn’t this already clearly legal? No risk, no gambling. Consultants are risking their time, which is a thing of value, but I don’t think any prosecutor would ever go after a market on those grounds.
In concept, the general workings of a Hanson-type market scoring rule, and in particular the direct link between payments and improvements to the joint forecast, seem straightforward and sensible enough that even a jury could recognize that it isn’t inherently a gambling exercise. (At least in cases in which it is apparent that specialized study would be linked to an improved forecast — not, for example, predicting the roll of dice — and in cases not already linked to gambling — horse races and sporting events for example.) A similar story could probably be made for a double auction or other market mechanism, the market scoring rules only have the advantage that Robin Hanson explained it these exact terms in his articles introducing the mechanism.
Jason: The idea is to move the law stepwise, from easy cases to harder ones, thus ending up establishing the legality of real-money, public, prediction markets under U.S. law. I thus deliberately chose a pretty clearly legal case to start with. As you note, though, there remains *some* chance that a prosecutor might act. The goal is to raise and extinguish that chance.
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Michael: Maybe. It would take some a good explanation to get a jury to reach that understanding, though.