Intrade Traffic Plummets

From the FT

The number of people using Intrade has plummeted since a US government crackdown late last year…At its peak, Intrade counted 112,000 users. At midday on Wednesday, the site said there were 509 – and 498 were guests.

The vanishing traffic raises questions about the predictive value of a market feted by journalists and academics as a pioneering gauge of public opinion.

The government failed to protect the public from CDOs plumped up with bad mortgages or from swindlers like Bernie Madoff but don’t worry when it comes to the markets that Arrow, Schelling, Smith, Hanson, Wolfers et al. said have “great potential for improving social welfare” the government has got it covered. Call me cynical but I suspect Intrade would have been better treated had it been a project of Goldman Sachs.

Comments

"failed to protect" is being extremely generous.

(as in, within your blurb you could 100% correctly interchange Bernie Madoff and Goldman Sachs)

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economists as usual overestimate the importance of such a market. most markets have had a way to speculate on politicians for centuries: purchasing and selling assets of the special interests they are close to. Tom Ferguson had a good paper a decade or so ago in the quarterly journal of economics showing you can figure out which companies backed hitler based on the equity response to hitler's rise to power.

Speculating on interests favored by politicians is a very noisy channel, if figuring out which candidates are likely to win is what you're after. For one thing, the policies that affect the fortunes of special interests aren't really produced by any single elected official. For another, the fortunes of special interests are influenced by politics, but they're influenced by a lot of other stuff too. So, when you take all of that into account, reading the tea leaves of regular equity markets is no adequate substitute for prediction markets.

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You seem to miss the part about improving social welfare.

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Perhaps you are being ironic with the remark about who overestimates importance? A plausible alternative is that politicians closed off a plausible alternative for that cash flow.

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> economists as usual overestimate the importance of such a market.

If it wasn't important, why did the Government harass its users?

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"Call me cynical but I suspect Intrade would have been better treated had it been a project of Goldman Sachs"

Indeed, when credit default swaps were 'invented', the banks were worried that they would be treated as gambling under the law. So, they got the CFTC to issue a special exemption for the new product.

And thank god, too - where would we be without credit default swaps?

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This seems to show the importance of the US for Western betting markets. Apparently participants not covered by U.S. law are few and far between. Or is it that the crackdown even affects non-resident citizens in ways that discourage use of Intrade? If not, it seems that Intrade and interest in it is heavily driven by Americans and those who might live and work in the US.

'Apparently participants not covered by U.S. law are few and far between.'

Actually, companies that have no dealings with the U.S. are legion - and betting in the UK, for example, has not suffered.

The problem is how the U.S. closes its market -

'The Caribbean nation of Antigua and Barbuda has won its case against the United States at the World Trade Organization (WTO) and is now authorized and moving forward with the granted sanction – suspension of all American-owned intellectual property rights within the Antigua borders. This trade sanction comes as a response to the US campaign against off-shore on-line gambling. That campaign has decimated an Antiguan industry and was found to violate the US WTO trade obligations. Antigua has been negotiating with the US for the past decade on some mechanism to resolve the dispute.'

http://www.patentlyo.com/patent/2013/01/antigua-to-reject-us-intellectual-property-rights-as-wto-authorized-trade-sanction-for-killing-offshore-online-gambling.html

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Very good post

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Don't forget the Constitutional power of Congress to hand-pick which states may offer wagering on sports, now being challenged by NJ (represented by Ted Olson) --

http://www.northjersey.com/news/NJ_sports_betting_case_to_be_decided_within_two_weeks.html

Protecting citizens from participating in markets in which they may actually be knowledgeable, a sacred duty indeed.

BT

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I have been participating for the better part of a year in a prediction market experiment.

While amusing, any practical application for it is not apparent. The one I am involved with is not so much a 'wisdom of the crowds' experiment as a 'wisdom of people with Masters degrees+ who follow current events and understand how stock markets work' experiment.

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The government is extremely corrupt and has no interest in making our lives better. They use bs stories, socialist myths and lies to justify their mercantilist cronyism. That is not cynicism, that is just truth.

Reminds me of this:

"Why do you people love the state so much? It doesn’t love you."

Michael Munger

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You get what you give. "Of, for and by the people" and all that.

That's one theory.

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Alex, why don't you start a petition at the White House web site to legalize such markets?
I am sure many readers of your blog will sign.

Have any of those petitions resulted in anything more than a letter?

I don't know. But at least (assuming that there are enough signatures) there would be an official response with some explanation of the policy. Could be useful at some future point.

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Not enough information in the article to come to the conclusion offered. To measure a drop-off in users from last year's peak of November is to ignore the natural drop-off that was to occur from the conclusion of the election cycle.

> This followed a 77 per cent plunge from 287,000 in November to 67,000 December.

I don't think many 2012 election punters were hanging around in December (to bet on what?).

On the other hand, US accounts were suspended 23 December....

Right. We don't have enough information. Did the 77% plunge happen after the election or after December 23rd. Conversely, did Intrade have anywhere near as many registered users the year prior to the election?

Also from the article: "At midday on Wednesday, the site said there were 509 – and 498 were guests." So eleven registered users is all that Intrade could muster from the rest of the world? Quite the reach the CFTC has.

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Alex,

You simply need to read the study showing that people have been victimized by these kind of prediction markets. Here you go...
Hmmm, that study must be around here somewhere....hang on...where is that darned study...I just had it...anyway, there must be a study, so, there you have it, QED.

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Paraphrased from Keynes - policy makers are usually slaves to some defunct economist.

The problem is that those guys that Alex cites are far from "defunct" - they're too good!

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I have always assumed the crackdown on internet gambling was done to protect legally-protected (and politically powerful) gambling operations in the US. I doubt anyone in the USG really cares about stopping prediction markets, but quite a few probably care about being seen to shut down US use of internet gambling.

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But betting is immoral... Are you actually defending it?

People should only be allowed to work and play baseball. Everything else can be abolished.

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I wonder how long before the US govt tries to outlaw "Bitcoin"?

They can take my liberty, but they'll never take my Unusual Hats!

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"The vanishing traffic raises questions about the predictive value of a market feted by journalists and academics as a pioneering gauge of public opinion."

This thing the government completely hamstrung isn't looking so great now, is it?

What a stupid line.

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Now Tabarrok wants the government to protect people from CDOs? Is he some sort of credit snob?

I was going to comment asking for Alex to post a link to his arguments in favor of regulating CDOs.

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The fact remains, Intrade could be manipulated. Many times wiseguys got caught bending the odds by massive buys or sells, producing totally unreliable predictions.

In other words, it was a worthless scam. If you tried to bet according to Intrade, you'd lose your shirt. It should be taken out with the rest of the garbage.

Unlike the stock markets, bond yields, BLS reports, etc. all of which will be soon banned to protect the clueless citizenry.

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