3 thoughts on “The CFTC is going to close the comments in 11 days. We have 11 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).”

1. IT IS WORKING.

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   My comment to the CFTC on prediction markets

   http://goodmorningeconomics.wo…..n-markets/

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   Great.

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2. There is strong evidence that the CFTC would be correct not to allow for-profit exchanges in their current form.

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   Any economist would find it obvious that a market mechanism should have as few negative (or positive) externalities outside of its supply & demand framework.  The current situation where markets are being provided without money being set aside from within that framework for the funding for legal cases (e.g. the ?900,000 bill picked up regrettably by the taxpayer in the recent collapsed horse racing trial), or where the costs of integrity/policing are going to be picked up by the sports themselves in other cases, are both unacceptable. 

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   Providing the markets whilst not taking into account the externalities may be moderately lucrative, but if markets are being offered which wouldn’t be if the negative externalities were priced in, then the current prediction markets are a Pareto failure overall.  The truth is that the markets may still be profitable to run either independently of the outcome (Betfair, currently) or with internal traders taking active trading decisions based on customers accounts (Spreadfair), but the cost of legal cases and integrity/policing, should be paid for by the collective of operators, in proportion to their overall market share in the respective sports concerned.  There is no value to society whatsoever of prediction markets being operated where the damage they cause (legal bills to the taxpayer, cost of integrity/policing by the respective sports themselves, etcetera) are larger than the actual profits from running the market which accrue to the prediction market operators, and in that scenario, the CFTC would be completely right to legislate against them.

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3. If the legal costs, and integrity costs, are met by the prediction market providers, the CFTC should approve them.  I don’t think its right that the taxpayer has to pay a ?900,000 bill for the recent failed racing trial, and will have to pay further bills in the future.  The taxpayer has not asked for prediction sports markets to be run, and the benefits from having them run (a small levy on exchange operators of 15%), may be outweighed by the costs of having them (increased availability of gambling, negative/destructive impact of gambling on families & individuals, legal bills needed to be paid for by the taxpayer not the prediction market operator, some spectators to sports events not seeing genuine sporting contests).

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   There is clear legislation in place for traditional industries, (e.g. banning them from dumping toxic waste into rivers etcetera), and in time, there will be clear legislation in place for the prediction markets.  This is clearly not in place yet.  As and when that happens, the CFTC should definitely approve for-profit prediction markets.  Until then, the jury is out, and the word “evil” in the title looks somewhat strong.

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