Utah Free Press

Prediction Markets; The new Online Casinos.

October 1st, 2008 by Richard Okelberry - Recently, I noticed a new sponsor link at KVNU For the People for a company called Predictify.  Predictify, like Intrade is a Prediction Market where everyday people can put their money where their mouth is in predicting the outcome of various events.  Marketed as Investment Markets, these sites allow people to buy “stock” in current events.  One of the most popular current events at Intrade right now is the U.S. Presidential election.  Some have put their money on Obama to win while others are betting McCain will be victorious.  Much like other investment markets, people can buy in our sell out at anytime, causing the price of the stock to rise or fall accordingly. 

Many experts have pointed to these sites as being very accurate in predicting world events because people are less likely to vote simply based on preference when their checkbooks are involved.  The question I have is; how is this any different that going to the horse races and placing money on a particular filly?  To be clear, I personally don’t have any problem with people gambling every cent away if they like.  That said, with only a few heavily regulated exceptions, gambling in most states is still illegal.   Here in Utah for example, gambling is so scorned that even popular lotteries are banned.  Therefore I must ask, is it legal for people in the state of Utah to put their money on an event like the election at one of these “Investment Markets?”

While many have long argued that the Stock Markets are nothing more than gambling, I would disagree.  Unlike Prediction Markets, when a person buys stock at the NY Stock Exchange, they are actually purchasing a small piece of an actual company.  Conversely, when you purchase stock at a Prediction Market, there is no ownership.  Instead, you are simply placing a wager that can be pulled for a loss or a profit at any time.

Intrade executives have been defending the site against charges of gambling by pointing out that unlike a Casino, Intrade doesn’t act as the “House” and merely takes a commission for trades.  This is a ridiculous argument, because it is the exact same way a horse track makes money and the same way even a casino makes money during High Stake events, like poker tournaments.  In each case the track or the casino’s “commission” is predetermined and the gamblers actually bet against each other.

Let’s be honest, without ownership in an actual company or commodity, sites like Intrade and Predictify are simply giving gamblers a new unregulated form of gambling.  I should also warn anyone who is considering using one of these sites and who see’s it as no different than any other form of market speculation that that Prediction Markets have become plagued with Inside Trading and market manipulation far worse than that experienced during the Day Trading boom in the late 90’s.  Also, do not be surprised to see states like Utah along with the Federal Government cracking down on the use of these sites in the near future.