[extropy-chat] Opinion piece on policy-making withpredictionmarkets

[Hal Finney]

There is actually quite a bit of movement in the U.S. towards prediction
markets.  A good reference site is http://www.chrisfmasse.com/ which keeps
things up to date.  There was a DIMACS conference on the topic earlier
this year, with a good report by Ken Kittlitz who runs the on-line FX
play-money game based on Robin Hanson's Information Futures concept,
http://www.chrisfmasse.com/2/2005/20050207.html .  Ken summarizes
one talk:

: Historically, there have been a number of approaches to setting up a
: real-money event market in the U.S.:
:
: a) Get a "no action" letter from the Commodity Futures Trading Commission
: (CFTC). This simply is documentation stating that the CFTC's enforcement
: arm will take no action against your market, as long as it sticks to the
: conditions set out in the letter. This is what the Iowa Electronic Markets
: (IEM) did in 1992. In some ways, it is the weakest form of approval,
: because the letter can potentially be rescinded.
:
: b) Become a Designated Contract Market (DCM). This is a designation
: issued by the CFTC that enables the recipient to create a market in
: some specified commodities. All the well-known futures exchanges in the
: U.S. are DCMs, as is HedgeStreet, a new entrant (more below). It costs
: a lot of money, and can take anywhere from 90 days to several years to
: obtain (four years in Hedge Street's case).
:
: c) Trade in an "excluded commodity". The CFTC does not regulate direct
: trades between "sophisticated" entities in such things as macro-economic
: indices. However, the sophisticated entities are usually institutions,
: not individuals. Otherwise, the CFTC does regulate trade in most other
: commodities, where a "commodity" is very broadly defined -- most goods
: and services qualify. Not onions, though. After a 1958 slump in onion
: prices allegedly due to speculators, the onion growers lobbied Congress
: to have onions excluded as a futures market commodity.
:
: d) Become a legal gambling entity. This is much harder than either of the
: CFTC options, because gambling is regulated (mostly) by the states. Some
: states have outlawed Internet gambling entirely, which makes running an
: Internet market tricky. Additionally, some federal laws apply.
:
: e) Go offshore. Many sites have done so, though they are violating the
: U.S. Wire Act if they accept bets from U.S. citizens. Very few people
: have been prosecuted for running such sites; the ones that have been
: are U.S. residents.

There is considerable academic research in the area as well.  One interesting
experiment currently being run:

: The Iowa Electronic Markets are now being used to help physicians
: predict the strain(s) of influenza that will occur in the upcoming flu
: season. This is an alternative to the current information aggregation
: mechanism, which is a conference call between 200 (!) "sentinel"
: physicians that occurs early in the year, eight months before the flu
: season hits. Early results are encouraging.

It should be interesting to see how that one comes out.

Hal Finney