Eric Zitzewitz on why the CFTC cracked down on Intrade: Why prohibit something so harmless? After all, U.S. policy already allows many forms of gambling that have significant social costs and produce no useful information. The real reason may be found in debate surrounding another recent setback for prediction markets, Congress’ last-minute modification of the Dodd-Frank financial reform bill in 2010 to prohibit markets on box-office receipts planned by the Hollywood Stock Exchange (HSX).
@715a731811a13051cfedfb1a7d614563:disqus srdiamond : No, it doesn't. The laws we have are the result of the conflict between different actors. They are not the result of an answer to the question: "What laws would maximize the public wellbeing".Given the recent "Money is speech" Citizens United decision you might win a a battle at the US Supreme court to give prediction markets legal protection. There just nobody to fight that battle because losing it would be costly.
Prediction market proponents are politically weak. It's easy for poltician's to attack them. It's not easy to attack pollsters.
That begs the question. If there were severe ideological prejudice against polls, we wouldn't be apt to have laws that defend them. There are unprotected forms of speech (by legal fiat)--such as "obscenity." Germany may ban polls on election day, much as the U.S. bans distribution of campaign literature at polling sites. "Time, place, and manner" restriction, as it's called here. But is there any nominal democracy where polls are prohibited generally? (Like prediction markets may be.)
You don't need billionaire to create a game, but given that it would be a quite non interesting game overall (likely ranking below 5 out of 10 on any game review site at best and probably getting no mention at all), you may need to do a lot of advertising, at least buy the ads at the sites that do reviews so you get some score. For that you may need a billionaire.
edit: on the other hand, there's apparently enough people who think that being a football manager is fun. Small percentile, probably, hence necessity for huge advertising.
edit: also, why it would be non-interesting: while prediction may be a bit of a status skill, prediction of poorly predictable events very slightly better than anyone else probably isn't. It may still be a success enough, maybe if you put this on some news site, to let people bet on all speculative news.
Creating such a game doesn't cost that much resources. You could do it in your spare time at home. There's no need for someone with a high amount of resources to get the project started.
Once you have your first version of the game you can go out and seek someone to pay you to expand the game.
Isn't politician's don't want the public to bet on results of political election quite similar to hollywood doesn't want the public to bet on the results of film results?
gambling is a "label" that we have applied to a group of activities but from a purely mathmatical perspective, there there is only risk: risk is the possibility of a bad outcome. it is created by uncertainty. uncertainty is created by a lack of information. if one had perfect information, there would be no uncertainty, and thus no risk.
middle. beginning. and end of discussion.
the regulatory legal view/definition of gambling is that gambling creates risk ... i.e. prior to placing your bet the risk did not exist ... but the act of placing the gamble creates the risk ...
trading, speculation, etc is different, these risks already exist in large form, but the act of trading them shares the existing risk amongst a larger audience ... in the case of a company, the risk of bad company performance is shared more broadly by markets where a larger group of investors now assume the risk ... but if the stock did not exist, the risk of performance is still there ...its just centralized for the owners of the company. same as commodity futures, the price of oil going up and down is there, but commodity markets enable the sharing of this risk
I don't buy this legal definition, because the volume of risk transfer versus speculation is about 1 to 20 in most commodity markets, far higher in others, so the true result of markets is to create new risks for a large audience that wouldn't have this risk in the first place if they had not traded but this is the way the regulators tend to look at things ...
ironically, the word risk has a negative bias, it is the possibility of a bad outcome ... there is no word in the english language to describe the possibility of a good outcome ... somebody here should invent it.
either the seller or the buyer, but not both, will make the right prediction, and the gain of one will be approximately the loss of the other one.Up to creation and destruction of stocks, and up to great differences in discounting and risk aversion w.r.t. money, the stock market is essentially a zero sum game.
It's a zero sum game ex post entry but not ex ante, which is the relevant frame. An investor in stocks is strongly incentivized to buy stock if he has the money because the value of capital increases over time with the expansion of production. The value of stock in the stock market rises on average; not so prediction-market positions.
Once in the market, a trader faces a zero sum game. But he pretty much has to accept that to maintain his assets in a changing economy. If he doesn't trade he is gambling (by retaining his position) just as much as if he trades (minus transaction fees). Although each transaction is zero sum (at the margin) a failure to trade could produce a large loss in the long-run as the market changes.
The difference isn't grasped by looking at the similarities between traders and those invested in the stock market who trade. The difference between the stock market and the prediction markets is that it's a zero sum game to enter the prediction markets; it's far from a zero sum game to enter the stock market, where everyone can (in principle) gain.
To compare buying a house and buying stocks, the use value of a house is for a place to live; the use value of stocks is to provide a likely source of expanding income and wealth; the use value of prediction positions is purely the procurement of gambling excitement (as the general rule).
When you buy a car or an house at price X from some individual that was previously using it, assuming that both you and the seller are rational and the trade is voluntary, you both gain from the transaction: for you the utility of owning the car or house is greater than the utility of X money, while for the seller it is lower.
The holding value of a car/house comes from the utility you can get from driving/inhabiting it, and for different people this utility can be different compared to the utility of a certain amount of money.It's true that there are speculators who buy these items for the main purpose of reselling them at an higher price, but in most non-pathological markets these transactions are a minority.
The holding value of financial assets, on the other hand, comes from the money they can make: when you buy a stock at price X, you are betting that in the future it will make more than X money (corrected for discounting and risk aversion), while the guy who sells that stock to you is betting that it will make less than X money (again, corrected for discounting and risk aversion).In principle, if the seller is much more risk averse and/or discounts much more than the buyer, they could both benefit from the transaction, but typically that's not the case: either the seller or the buyer, but not both, will make the right prediction, and the gain of one will be approximately the loss of the other one.Up to creation and destruction of stocks, and up to great differences in discounting and risk aversion w.r.t. money, the stock market is essentially a zero sum game.
The buyer and the seller gamble against each other over the holding value of the share.
Every resellable good sold contains elements of a gamble. You buy a house, particularly, even a car, and you are potentially gambling on resale value. That doesn't mean you're "gambling." Some people are, of course. There are turn-over artists in the housing market, etc. But people buy houses because they want a place to live; buy a car because they want transportation. They are compelled to gamble if they intend eventually to resell, for whatever reason. An element of gambling is necessarily involved whenever there's a market; house buyers are compelled to gamble, but the excitement of the gamble isn't their basic motive, because a house is a product with independent value.
Similarly stocks have independent value; people buy them because it produces a better return than putting the money in the bank or under their mattresses. To get the best value from them, they have to be prepared to gamble, but gambling isn't necessarily or usually the motive--because they represent value independently of the transaction process, is in gambling.
Gambling is a zero sum game. Buying stocks or a house isn't. It's true that in a sale of stock you are necessarily making a bet. So, when you buy a house, you are (almost) necessarily making a bet. But in neither case is betting necessarily or typically the reason for investing. All home owners could in principle benefit from buying homes; all investors in stocks could in principle benefit from buying stocks, although some in each case benefit more than others. But all gamblers or prediction market participants cannot in principle benefit; one's loss is necessarily the others gain. That's what makes it gambling, rather than gambling being incidental to the operation of markets for real value.
This seems obvious and uncontestable. I wonder if the spin the proponents of prediction markets have given them has successfully obscured these truisms._
Most transactions in the stock market don't involve newly issued stocks.
When you buy an already existing share at price X, you are betting that the discounted cumulative dividends that will be payed by that share exceed X (or, more precisely, that the discounted cumulative utility from the dividends payed by that share exceeds the utility of having X $ now). The seller, of course, is making the opposite bet. So, unless you have greatly different risk adversion w.r.t. money or greatly different discount strategies, you can't be both right:The buyer and the seller gamble against each other over the holding value of the share.
(This is actually a reply to VV, but the comment system here has a depth limit.)
Aggregate poll analysis beats single polls by a small margin *in percentage accuracy*, but it's not so small *in confidence about the election outcome*. In the last couple of US general elections, plenty of individual states have had very uncertain outcomes, the popular vote has been within a couple of percent of 50:50, but poll aggregators like Nate Silver and Sam Wang have (with very good justification) called the election result with something like 90% confidence or more.
Sorry, lost track of the acronyms. I agree the NADEX decision (taken by Congress) was political and driven by makers of bad movies using Congress to protect unfair profits. I stick by my contention that the CFTC decision to ban Intrade commodities contracts (which led Intrade to shut down, presumably for policing costs) was *not* political but driven by reasonable long-standing laws they were bound to enforce.
@715a731811a13051cfedfb1a7d614563:disqus srdiamond : No, it doesn't. The laws we have are the result of the conflict between different actors. They are not the result of an answer to the question: "What laws would maximize the public wellbeing".Given the recent "Money is speech" Citizens United decision you might win a a battle at the US Supreme court to give prediction markets legal protection. There just nobody to fight that battle because losing it would be costly.
Prediction market proponents are politically weak. It's easy for poltician's to attack them. It's not easy to attack pollsters.
That begs the question. If there were severe ideological prejudice against polls, we wouldn't be apt to have laws that defend them. There are unprotected forms of speech (by legal fiat)--such as "obscenity." Germany may ban polls on election day, much as the U.S. bans distribution of campaign literature at polling sites. "Time, place, and manner" restriction, as it's called here. But is there any nominal democracy where polls are prohibited generally? (Like prediction markets may be.)
You don't need billionaire to create a game, but given that it would be a quite non interesting game overall (likely ranking below 5 out of 10 on any game review site at best and probably getting no mention at all), you may need to do a lot of advertising, at least buy the ads at the sites that do reviews so you get some score. For that you may need a billionaire.
edit: on the other hand, there's apparently enough people who think that being a football manager is fun. Small percentile, probably, hence necessity for huge advertising.
edit: also, why it would be non-interesting: while prediction may be a bit of a status skill, prediction of poorly predictable events very slightly better than anyone else probably isn't. It may still be a success enough, maybe if you put this on some news site, to let people bet on all speculative news.
Creating such a game doesn't cost that much resources. You could do it in your spare time at home. There's no need for someone with a high amount of resources to get the project started.
Once you have your first version of the game you can go out and seek someone to pay you to expand the game.
Because no politican in the US would get away with trying to ban polls. The US Supreme court would simply overturn any law that would ban polling.
In Germany we do have laws that ban some polls right on election day.
So if big business starts to want prediction markets they will lobby for them, and we will profit from them?
Isn't politician's don't want the public to bet on results of political election quite similar to hollywood doesn't want the public to bet on the results of film results?
gambling is a "label" that we have applied to a group of activities but from a purely mathmatical perspective, there there is only risk: risk is the possibility of a bad outcome. it is created by uncertainty. uncertainty is created by a lack of information. if one had perfect information, there would be no uncertainty, and thus no risk.
middle. beginning. and end of discussion.
the regulatory legal view/definition of gambling is that gambling creates risk ... i.e. prior to placing your bet the risk did not exist ... but the act of placing the gamble creates the risk ...
trading, speculation, etc is different, these risks already exist in large form, but the act of trading them shares the existing risk amongst a larger audience ... in the case of a company, the risk of bad company performance is shared more broadly by markets where a larger group of investors now assume the risk ... but if the stock did not exist, the risk of performance is still there ...its just centralized for the owners of the company. same as commodity futures, the price of oil going up and down is there, but commodity markets enable the sharing of this risk
I don't buy this legal definition, because the volume of risk transfer versus speculation is about 1 to 20 in most commodity markets, far higher in others, so the true result of markets is to create new risks for a large audience that wouldn't have this risk in the first place if they had not traded but this is the way the regulators tend to look at things ...
ironically, the word risk has a negative bias, it is the possibility of a bad outcome ... there is no word in the english language to describe the possibility of a good outcome ... somebody here should invent it.
either the seller or the buyer, but not both, will make the right prediction, and the gain of one will be approximately the loss of the other one.Up to creation and destruction of stocks, and up to great differences in discounting and risk aversion w.r.t. money, the stock market is essentially a zero sum game.
It's a zero sum game ex post entry but not ex ante, which is the relevant frame. An investor in stocks is strongly incentivized to buy stock if he has the money because the value of capital increases over time with the expansion of production. The value of stock in the stock market rises on average; not so prediction-market positions.
Once in the market, a trader faces a zero sum game. But he pretty much has to accept that to maintain his assets in a changing economy. If he doesn't trade he is gambling (by retaining his position) just as much as if he trades (minus transaction fees). Although each transaction is zero sum (at the margin) a failure to trade could produce a large loss in the long-run as the market changes.
The difference isn't grasped by looking at the similarities between traders and those invested in the stock market who trade. The difference between the stock market and the prediction markets is that it's a zero sum game to enter the prediction markets; it's far from a zero sum game to enter the stock market, where everyone can (in principle) gain.
To compare buying a house and buying stocks, the use value of a house is for a place to live; the use value of stocks is to provide a likely source of expanding income and wealth; the use value of prediction positions is purely the procurement of gambling excitement (as the general rule).
@f26939f398e5b2e21ea353b06370c426:disqus
When you buy a car or an house at price X from some individual that was previously using it, assuming that both you and the seller are rational and the trade is voluntary, you both gain from the transaction: for you the utility of owning the car or house is greater than the utility of X money, while for the seller it is lower.
The holding value of a car/house comes from the utility you can get from driving/inhabiting it, and for different people this utility can be different compared to the utility of a certain amount of money.It's true that there are speculators who buy these items for the main purpose of reselling them at an higher price, but in most non-pathological markets these transactions are a minority.
The holding value of financial assets, on the other hand, comes from the money they can make: when you buy a stock at price X, you are betting that in the future it will make more than X money (corrected for discounting and risk aversion), while the guy who sells that stock to you is betting that it will make less than X money (again, corrected for discounting and risk aversion).In principle, if the seller is much more risk averse and/or discounts much more than the buyer, they could both benefit from the transaction, but typically that's not the case: either the seller or the buyer, but not both, will make the right prediction, and the gain of one will be approximately the loss of the other one.Up to creation and destruction of stocks, and up to great differences in discounting and risk aversion w.r.t. money, the stock market is essentially a zero sum game.
I smell 'merica centrism in the air =) Intrade may be back for the US next year. Just "gambled" $25 on the US getting the debt limit raised by dec 31.
V.V.::
The buyer and the seller gamble against each other over the holding value of the share.
Every resellable good sold contains elements of a gamble. You buy a house, particularly, even a car, and you are potentially gambling on resale value. That doesn't mean you're "gambling." Some people are, of course. There are turn-over artists in the housing market, etc. But people buy houses because they want a place to live; buy a car because they want transportation. They are compelled to gamble if they intend eventually to resell, for whatever reason. An element of gambling is necessarily involved whenever there's a market; house buyers are compelled to gamble, but the excitement of the gamble isn't their basic motive, because a house is a product with independent value.
Similarly stocks have independent value; people buy them because it produces a better return than putting the money in the bank or under their mattresses. To get the best value from them, they have to be prepared to gamble, but gambling isn't necessarily or usually the motive--because they represent value independently of the transaction process, is in gambling.
Gambling is a zero sum game. Buying stocks or a house isn't. It's true that in a sale of stock you are necessarily making a bet. So, when you buy a house, you are (almost) necessarily making a bet. But in neither case is betting necessarily or typically the reason for investing. All home owners could in principle benefit from buying homes; all investors in stocks could in principle benefit from buying stocks, although some in each case benefit more than others. But all gamblers or prediction market participants cannot in principle benefit; one's loss is necessarily the others gain. That's what makes it gambling, rather than gambling being incidental to the operation of markets for real value.
This seems obvious and uncontestable. I wonder if the spin the proponents of prediction markets have given them has successfully obscured these truisms._
Most transactions in the stock market don't involve newly issued stocks.
When you buy an already existing share at price X, you are betting that the discounted cumulative dividends that will be payed by that share exceed X (or, more precisely, that the discounted cumulative utility from the dividends payed by that share exceeds the utility of having X $ now). The seller, of course, is making the opposite bet. So, unless you have greatly different risk adversion w.r.t. money or greatly different discount strategies, you can't be both right:The buyer and the seller gamble against each other over the holding value of the share.
(This is actually a reply to VV, but the comment system here has a depth limit.)
Aggregate poll analysis beats single polls by a small margin *in percentage accuracy*, but it's not so small *in confidence about the election outcome*. In the last couple of US general elections, plenty of individual states have had very uncertain outcomes, the popular vote has been within a couple of percent of 50:50, but poll aggregators like Nate Silver and Sam Wang have (with very good justification) called the election result with something like 90% confidence or more.
Curt, the Nadex decision was by the CFTC, not congress.
Sorry, lost track of the acronyms. I agree the NADEX decision (taken by Congress) was political and driven by makers of bad movies using Congress to protect unfair profits. I stick by my contention that the CFTC decision to ban Intrade commodities contracts (which led Intrade to shut down, presumably for policing costs) was *not* political but driven by reasonable long-standing laws they were bound to enforce.