Thursday, February 28, 2008

Getting from Collective Intelligence to Collective Action

I really enjoyed attending the Collective Intelligence FOO Camp, sponsored by Google and O'Reilly Media, last weekend. I'd been expecting a sort of geek slumber party, and had looked forward to rolling out my awesome Darth Vader impersonation. I was all set to cut loose with a growling, "I'm your father, Luke." It didn't quite come to that, but I still had a blast, meeting lots of smart, informed, articulate, creative, and successful people. Friendly people, too.

I described how to establish the legality of real money, open-access prediction markets under U.S. law. I called my presentation, Getting from Collective Intelligence to Collective Action [PPT file]. In very brief, I proposed this algorithm:

  1. Set up an enterprise prediction market, make playing it a condition of continued employment, and offer valuable prizes to the best predictors.
  2. Set up a limited access prediction market, hire a number of independent contractors researchers to play it, pay them a relatively low salary for doing so, and offer valuable prizes to the best predictors.
  3. Set up an open-access prediction market but require anyone playing it to go through a click-wrap license that creates the sort of independent researcher relationship described at step 2, above.

When and if standing for declaratory judgment obtains, a litigation team should bring suit seeking to establish the legality of the prediction market under U.S. law. The market should be run by a worthy institution and deal only in claims likely to generate large positive externalities., for example, might set up a market in earthquake claims and ask for a court's blessing.

That strategy would stand a fair chance—a 75% chance, I'd say—of establishing the legality of a great many in-house and (effectively) public prediction markets under U.S. law. The strategy would not impose great costs or risks, though it would take some careful planning and execution, and would almost certainly generate large private and public goods. It might even save lives; we could really use a reliable early-warning system for major earthquakes.

This legalization program would most directly benefit subsidized markets; it would not plainly establish the legality of markets where traders could invest their own funds or hedge against off-market risks. I'm still working out a legal hack for that step. It will be an easier step to take, however, if we've already made it as far as establishing the legality of open-access, real money prediction markets under U.S. law.

We should still pursue other routes to establishing the legality of prediction markets under U.S. law, of course. It already helps that so many U.S. residents evidently make and lose money on Ireland-based InTrade. That at least goes to show that prediction markets hurt nobody. Getting the CFTC to issue safe-harbor regulations would help, too. All of those routes to public, real money prediction markets in the U.S. merit exploration. Any of them might offer a shortcut to a better, freer future.

[Posted at Agoraphilia, The Technology Liberation Front, and Midas Oracle.]

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