People close to the CFTC say that one reason this is coming now is that the Chairman (who will be retiring soon) wants a legacy —-something he leaves behind that is innovative and that he can be known for pioneering. If that’-s the case, it means that nobody is pressuring them.
Signed: Deep Throat
…- in response to that.
I want to quibble with one of Dave Pennock’-s comments on the CFTC request. Pennock wrote “-It’-s not often that an industry in its infancy cries out for more government oversight.”-
It’-s actually quite common. The term in the economics literature that includes this is regulatory capture. When there’-s a regulatory body specific to a particular industry, it’-s very common for industry to be the major source of expertise in the area, and so for the regulators to be reasonably friendly with the businesses. The businesses can work for regulation that limits entry, and cuts down on competition that reduces profits, and they can work together to ensure that public relations problems are addressed in a cohesive way. But cutting down on competition often means fewer choices for consumers by way of tighter controls on what products are offered.
In our case, the thing I worry about is a narrow ruling that only “-socially valuable”- questions can be asked, and an expensive process for deciding what innovative questions can be posed. It seems likely that some interests will work to ensure that sports and entertainment questions be declared off-limits. The companies that have the strongest interest in fighting that faction are mostly persona non grata in the CFTC’-s eyes, since they currently operate outside the law (TradeSports) or outside the country (BetFair).
The narrower the set of approved questions, or the more expensive the process of getting approval, the less chance that markets will be commercially successful. I think the experiments within companies have indicated (though not proven) that a mix of valuable and popular claims is necessary in order to attract continuing participation.
My biggest worry about fighting for CFTC regulation at this point is that they’-ll approve something narrow, and this won’-t produce enough successes to demonstrate that loosening the restrictions over time would be beneficial. The alternative is to continue to find ways to introduce markets under the radar and demonstrate their value to the academic audience, which could lead to a friendlier hearing in a more distant future after prediction markets have demonstrated social value and little risk of harm.
Of course the other likely outcome is that the novel experiments don’-t happen because of the threat of litigation or regulation. But that seems unlikely given the growth in internal markets within companies. I think there’-s more likelihood of long-term success without regulation than with it, and we’-re better off waiting until the chances that the regulations will provide a broad approval are significantly higher.
(Cross-posted from pancrit.org.)
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Waiting to see the positions of Michael Giberson, Jason Ruspini, Caveat Bettor, Robin Hanson, Justin Wolfers, Eric Zitzewitz, etc.
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Free Markets –->- Free Predition Markets
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Here is a beauty from InTrade, 12 hours ago: Bids and Asks at the same price. Looks like the ‘-ol InTrade price-matching mechanism is working great.
Signed: Deep Throat
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Editor’-s Note: Here’-s a new screen shot, taken this Saturday early morning (US Easter: 2:50 am).
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Jason Ruspini:
Actually it’s working fine. This means the same trader has a bid and offer at the same price. Otherwise traders would be able to manufacture bogus volume by trading with themselves.
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Via professor Eric Zitzewitz of Dartmouth, the CFTC announcement.
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CFTC’-s Concept Release – (PDF file)
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InTrade’-s John Delaney’-s message to the prediction market crowd.
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Midas Oracle authors (and that includes PMIA’-s Emile Servan-Schreiber) can post their views, here, if they wish —-or link externally to their own blog, if they wish.
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David Pennock has published a comment that rebuts mine.
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One comment, over there.
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Finally, I’-m searching for a co-author, or a bunch of co-authors, who share my views, and would like to submit a short e-mail to the CFTC, before the end of June, 2008.
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Excellent formulation by Mike Linksvayer.
Tells a lot about the usage of the prediction market probablities, and how we should market them to people. BetFair, InTrade and TradeSports, are you listening?
I check prices at Intrade most days, which gives me a more accurate and much more concise status update than any amount of time spent reading or watching commentary.
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That was Tom W. Bell, of course. And 5 months after Tom W. Bell’-s pronouncement, HedgeStreet v1 ate the bullet and bellied up.
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Doctor Pennock, isn’-t “-pragmatism”- to take into perspective the hard facts povided by:
Shouldn’-t the “-pragmatists”- draw lessons from all that?
Or will the the “-pragmatists”- ignore the hard facts?
Of, yeah, please, let’-s display “-pragmatism”-.
Back in your court, doc.
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Here’-s Tom W. Bell’-s old take that prediction markets fall outside of the CFTC’-s jurisdiction.
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Via professor Eric Zitzewitz of Dartmouth (one of the top 5 economists studying prediction markets), the CFTC:
Release: 5493-08
For Release: May 1, 2008
CFTC Requests Public Input on Possible Regulation of “Event Contracts”
Washington, DC – The Commodity Futures Trading Commission (CFTC) is asking for public comment on the appropriate regulatory treatment of financial agreements offered by markets commonly referred to as event, prediction, or information markets.
During the past several years, the CFTC has received numerous requests for guidance involving the trading of event contracts. These contracts typically involve financial agreements that are linked to events or measurable outcomes and often serve as information collection vehicles. The contracts are based on a broad spectrum of events, such as the results of presidential elections, world population levels, or economic measures.
“Event markets are rapidly evolving, and growing, presenting a host of difficult policy and legal questions including: What public purpose is served in the oversight of these markets and what differentiates these markets from pure gambling outside the CFTC’s jurisdiction?” said CFTC Acting chairman Walt Lukken. “The CFTC is evaluating how these markets should be regulated with the proper protections in place and I encourage members of the public to provide their views.”
In response to requests for guidance, and to promote regulatory certainty, the CFTC has commenced a comprehensive review of the Commodity Exchange Act’s applicability to event contracts and markets. The CFTC is issuing a Concept Release to solicit the expertise and opinions of all interested parties, including CFTC registrants, legal practitioners, economists, state and federal regulatory authorities, academics, and event market participants.
The Concept Release will be published in the Federal Register shortly- comments will be accepted for 60 days after publication in the Federal Register.
Comments may also be submitted electronically to [email protected]. All comments received will be posted on the CFTC’s website.
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WOW.
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UPDATE: Eric Zitzewitz tells me that comments are sought 60 days after publication in the Federal Register. So, the deadline for commenting will be somewhat around June 30, 2008.
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BetFair’-s prediction markets, on which country will get the most medals —-it’-s China, but the U.S. is not far behind.
InTrade’-s prediction markets, on the boring boycott thing.
TradeSports is AWOL.
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A proposal: Will the Olympics get derailed by air pollution?
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Previous blog posts by Chris F. Masse:
Guess who said that in 2006.
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Previously: BetFair’-s Mark Davies on sports betting
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