July 11, 2008
Prediction Markets & Being Blacklisted at Volokh Conspiracy
Posted by Christine Hurt

Jonathan Adler today quotes from an opinion in the NYT by Northwestern professor on whether prediction markets should be granted a safe harbor by the CFTC.  I tried to comment on this post, but the spam filter wouldn't let me post my comment because it contained "blacklisted words" that gave the suspicion that I was a gambling spammer.  Because I could not think of how to write my comment without the blacklisted words, here is my comment:

I agree that there should be a safe harbor for prediction markets (and other types of online speculation), but I take issue with the statement (of Professor John McGinnis) that federal and state law generally does not prohibit gambling.  I think that's false.  Federal law does prohibit online gambling generally, with few exceptions for securities trading and fantasy sports.  Federal law also prohibits gambling over "the wires."  Given its jurisdiction, that's about all federal law can do.  I would also say that most states generally prohibit gambling, but have many exceptions.  In other words, in most states, gambling is prohibited unless it is specifically allowed.  A better way to frame the argument is to say that most states allow many types of gambling, from casino gambling to horse racing, and prediction markets, which have positive externalities, should also be allowed.  Of course, the real comparison is that prediction markets are online, and online gambling is illegal throughout the U.S.  To carve out an exemption, one would have to face that blanket prohibition head on.

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