Are Prediction Markets Protected By The First Amendment?

November 26th, 2012

Brian Caplan raises a good point about the CFTC’s prosecution of Intrade: there should be a 1st Amendment challenge for prediction markets.


My friend Miriam Cherry, along with Robert Rogers, wrote a 2008 article in the Illinois Law Review addressing just that question, titled “Prediction Markets and the First Amendment.”

The article notes:

Because of the expressive element inherent in prediction markets, we contend that one’s participation in such a market is often entitled to First Amendment protection. Each person who participates in an infor- mation market is, in essence, offering his or her opinion on the outcome of an uncertain future event. A survey of the markets currently operat- ing shows that they have tended to cluster in certain areas, predicting po- litical events, current events, as well as developments in entertainment, science, and technology.12 Currently, more than a third of the publicly traded information markets work to predict the outcomes of elections and newsworthy issues.13 These subjects are all areas of public concern, as that term is traditionally used in First Amendment jurisprudence, and indeed, many of these subjects involve areas of core political speech. In addition to the speech rights of the individual participants, information markets as a whole generate predictions that are a form of “metaspeech” that should also be allowed to flourish.

Although several other commentators have offered preliminary identification of the existing regulatory regimes—commodities trading, securities regulation, and gambling laws—that might be applied to in- formation markets,14 there has been little discussion of the interaction of prediction markets with the First Amendment.15 Certain characteristics of prediction markets, such as their reliance on information, skill, and knowledge, make them different from gambling or other games of chance, or even from games of mixed skill and chance, such as poker. Prediction markets are also different from traditional stock markets, which exist for the purpose of raising capital and sharing risk and reward among investors. And certain characteristics of information markets set them apart from commodities markets, which are designed to allow enti- ties to engage in hedging strategies to manage their risk exposure.1

I will write something about this.

Update (3:30 a.m. CST): Four hours later, I just finished the first draft of an Op-Ed, titled “Big Data and the First Amendment.” I am working with two other co-authors. We will be shopping it around shortly. Stay tuned. (I really wish courts would take a recess till my book manuscript is completed!)