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Thursday
Feb052009

Perhaps Intrade isn’t doomed after all…

Barney Frank, Chairman of the House Financial Service Committee, told the Financial Times today that he will introduce a bill to establish a licensing and regulatory framework for online betting operators. Under Frank’s proposal, the Unlawful Internet Gambling Enforcement Act of 2006, the law that forced Tradesports to shut down and currently threatens all online sites where real money is exchanged, would be relaxed.

This is good news for prediction markets. Less regulation means that more prediction markets can operate with the component that market theory says is so important: financial incentive. Tradesports and IEM are so effective now in their predictive power because betters have real money at stake. SimExchange, Hollywood Stock Exchange, and others use a variety of other incentive mechanisms including public leaderboards, faux currency, and bragging rights, but none of these equal the power of cash.

This is also good news for those interested in freedom and commonsense policy. Barney rightly compares the stringent gambling penalties to those encountered during the age of prohibition. And if Maryland is going to grant waivers for slot machines, then doesn’t it make sense to allow betting that actually involves some brainpower and might influence decision making around something of consequence?

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