I, along with Tom Bell and Miriam Cherry, have authored an Op-Ed on the Commodity Future Trading Commission’s suit against Intrade. We arguing that it violates the First Amendment (stay tuned for the placement). Yesterday, Tom spoke with NPR about the suit.
To use Intrade, members place bets on yes-or-no questions. Much like a stock, the price of placing a bet fluctuates based on demand. And when the outcome is determined, the payout is either $10 or nothing. If you win, your profit is that $10, minus the price you paid to place your bet.
According to Thomas Bell, a professor at Chapman Law School in California, the CFTC considers those transactions enough like pork belly futures — which fall under the commission’s authority — to be shut down.
Bell says prediction markets that allow trading on current events are still a very tiny — and very new — segment that occupies a gray area of the law.
“It’s not clear under U.S. law at present whether it’s gambling, whether it’s commodities futures trading, or whether it’s securities,” Bell says. “There’s terrible uncertainty.”
Also, there are interesting quotes from Justin Wolfers about the differences between gambling and betting.
“Conceptually, to an economist, there’s not a difference between betting and trading — apart from the fact that one sounds more polite than the other,” says Justin Wolfers, who grew up in Australia working for bookies taking bets.
Now a University of Michigan professor who’s studied Intrade, Wolfers says the site is not just a venue for winning and losing money. It also generates news as a byproduct, he says [JB: A decent point for our First Amendment argument]. That is, the odds on Intrade are almost always right.
“It tends to be more accurate than pundits, it tends to be more accurate than polls, and in the past it’s even more accurate than very sophisticated poll-watchers like The New York Times’ Nate Silver at FiveThirtyEight.com,” Wolfers says.
Stay tuned. I’ll have more on this shortly.