Wednesday, November 28, 2012

Intrade and the Iowa Electonic Markets

The CFTC has gone after Intrade, a "prediction" or betting market that offers among other contracts ones that allow customers to bet on political developments, such as the Supreme Court decision on the Affordable Care Act or the result of the U.S. Presidential election.  Intrade, which is based in Dublin, Ireland, has announced that it cannot accept U.S. residents as customers and has asked current U.S. residents who have accounts with Intrade to close these accounts.  It has also posted on its website the following statement:

"We understand yesterday's announcement was met with surprise and disappointment by our US customers, but this in no way signals the end of Intrade in the US. In the near future we'll announce plans for a new exchange model that will allow legal participation from all jurisdictions - including the US. We believe this new model will further enhance Intrade's position as the leading prediction market platform for real time probabilities about future events.

"For our non-US customers, we will continue to offer real-money prediction markets. In the coming weeks and months we plan to implement a number of improvements to the Intrade website. These include expanding our market categories, adding more convenient funding options and a new and improved trading interface. We’ll keep you posted on these initiatives as they develop."

In the meantime, a U.S. based marketplace, Iowa Electronic Markets, operated by the University of Iowa College of Business, offers some similar prediction contracts to those trading on Intrade. The IEM benefits from two CFTC no-action letters issued in 1992 and 1993 (you may have to use Internet Explorer to access these files). The letters state that it is IEM's responsibility to ascertain that the markets are not in violation of state gaming laws.

It is interesting to note in this connection that Admiral John Poindexter, when he was Director of Information Awareness Office of the Defense Advanced Research Projects Agency ("DARPA") during the George W. Bush Administration, proposed setting up a "Policy Analysis Market" for predicting political developments in the Middle East.  This was squashed by an outcry of a possible market for betting on terrorism, not on legal grounds.


  1. Thought about these prediction markets again after Intrade's shuttering (the CEO died ascending Everest). PaddyPower and Betfair do not accept U.S. bettors, but did show odds for the U.S. elections.

    The volume was so small (and this was also true for Intarde) that it would have been within either Clinton or Trump campaign to buy prediction buzz---if such were seen to be important in getting media attention or swaying media conversation / voter opinion.

    Surowiecki's 2004 (?) book not only promoted prediction markets as a concept, but he did he did his best to analyse effects like only outsiders betting. But IIRC neither Surowiecki nor the popular conversation at the time did not address size/volume, frequency of trades, or depth/availability/reaction/liquidity, which as I try to understand the markets myself seems critically important.

  2. Thanks for posting those CFTC letters. Would never have known.