Thursday, March 09, 2006

Money Mouth

I'm wrapping up my most recent paper on prediction markets, "The Prediction Exchange: Progress in Promoting the Sciences and Useful Arts." By way of the grand finale, I'm toying with putting in the conclusion this passage:
I hereby offer to sell for $.10 each up to 1000 prediction certificates, each of which contains the following promise: "The bearer of this certificate is entitled to receive $1.00 from Tom W. Bell if, before January 1, 2010, a federal or state court in the United States holds that a prediction exchange fitting the definition set forth in [this article] violates state or federal gambling laws or falls within the jurisdiction of the SEC or CFTC." The certificates will contain some additional fine print, naturally. That promise captures the heart of my prediction, however. It moreover shows that I am willing to risk $1000 on my claim that, all told, prediction markets should not be illegal under U.S. law. More exactly, my asking price shows that I think it only 10% likely that my prediction errs.

So, dear readers and fellow prediction market geeks, what do you think of that? Yes, I know it's typically nutty; I mean only to ask if this admittedly rough proxy for a real prediction market contains some fatal flaw. Also, you may have some ideas about what I need to put in the fine print. I certainly to discuss, in a footnote, the need to name judges, the choice of law provision, the fact that I can delegate my duty. I may even include a sample certificate. I doubt I can easily go as far as Robin Hanson did, so many years ago, in his Extropy article on prediction markets. He included, in each hardcopy, a real coupon!


Gil said...

Pretty sneaky, Tom.

If they are ruled illegal gambling, won't it be difficult for people to force you to pay up on their certificates?

Tom W. Bell said...

Not necessarily, Gil. The ruling could, for instance, be from a trial court in Vermont and concerning a wholly unrelated transaction. But, granted, that might chill someone's willingness to cash in my certificates.

I've thought of playing up the paradox angle, for fun and profit. The certificate would specifically concern it's *own* legality, and the fine print would read, "This offer void where prohibited by law." So if it's legal, I win. And if it's illegal . . . I win!

I dunno', though. My gut tells me there's something unfair about that.

Gil said...

You think?

Chris Hibbert said...

The coupons (signed and numbered!) stapled to my copy of Robin's 1989 draft include both yes and no versions of the claim that a nanocomputer will exist by 2020. You're only going to give out one side of the claim? The way to one-up Robin would be to commit to creating a market in the claim so people can follow its price.

Why not give away the initial coupons, as Robin did? Then you wouldn't have to sweat the legal details. But maybe you like sweating the legal details.

I'm looking forward to reading the draft.

Tom W. Bell said...


Ah, yes, I recall that copy fondly, too. I still have my magazine *and* coupon!

I did things differently for a couple of reasons: 1) I am using the claim to show someone backing up his views ("Prediction exchanges will not be found illegal under U.S. law") with money; 2) I don't think I can get a law review to agree to anything more complicated; 3) As you deduced, I like taking this legal risk. It's fun and, notably, consistent with my thesis.