The Commodity Futures Trading Commission (CFTC) is going after Intrade, the online prediction market, for running an unregulated futures market. 

Insofar as Intrade sells binary event contracts (basically, bets on predictions) on things like the price of oil and gold, this makes sense. But Intrade is famous for markets in things totally unrelated to commodities, like political election results

According to the CFTC, these political event contracts are “contrary to the public interest.” Specifically, CFTC objects because political event contracts: 

  1. resemble gambling,“ as gambling is defined by statute in several states; i.e., they involve "the staking or risking by any person of something of value upon the outcome of a contest of others;”
  2. have no value as a hedging strategy, because the economic outcome of a given election is uncertain;
  3. have no price-basing utility, as there’s no way parties could base the price of a commodity or financial service on the outcome of an election; and
  4. could affect the integrity of elections, because the availability of such contracts could compel voters to vote against their political interests if the potential payoff was sufficient.

All 4 conclusions are questionable, and CFTC’s position is absurd.

The idea that markets don’t move along with expected political outcomes because the economic consequences are unclear is ridiculous. To give just one example, healthcare stocks went up considerably after Obama was re-elected as a result of increased confidence that Obamacare would not be repealed. 

Anyway, prediction markets are just too good an idea to go away. 

Comment