For Americans, the Ireland-based trading platform always existed on tenuous legal ground. It was part online gambling site and part unregulated futures market, neither of which are legal in the United States. That’s why in November, after the Commodities Futures Trading Commission sued, Intrade closed all U.S. accounts. It is unclear what led to its shutting down over the weekend, except that its board of directors said there “may be financial irregularities.”
It’s a shame, and this is why. We live in a world of punditry in which there are large amounts of, to put it nicely, horse manure. Those of us who write and talk about what will happen inevitably rely on vague predictions, full of qualifications. I’m guilty of it myself, and often find myself writing things like “this ought to be an OK year for the economy, if fiscal austerity isn’t too severe and there isn’t a return of the European crisis.”
On Intrade, by contrast, the traders who participate and collectively set market prices, are forced to choose—and put money where their mouths are. Will the United States enter a recession in 2013? Before it shut down, the prices for that contract on Intrade implied a 16.9 percent chance that the answer was “yes.” In a world in which people hold their pundits to a higher standard, people spouting off on the economy (or politics, or foreign affairs, or the selection of the pope) would be forced to make specific, testable predictions, and attach probabilities to those guesses.
Years ago, I had an Intrade account, which I used to bet on sports (the exchange subsequently split off its sports operation). I had great fun, for example, during the Boston Red Sox World Series run in 2004, trading futures within games based on how the game was playing out. I dabbled in arbitrage, trying to profit when there were mismatches between the probabilities of, say, the Red Sox winning that game, the American League championship, and the World Series. In football, I found that the markets seemed to assign too much significance when a team scored a quick initial touchdown, its probability of victory rising more than fundamentals would suggest (my strategy was to sell into that spike).
By then it was already clear that it would be hard for Americans to get their money out of the service given U.S. anti-online gambling laws, so I figured I would keep going until either the few hundred dollars I had put in were all lost or I had won enough to justify a trip to Ireland to collect; I ended up zeroing out first (the January 2007 AFC championship was very good for Peyton Manning and very bad for me).
Here’s the thing: I never bet on elections or geopolitical events, considering it unethical for a news reporter to be betting on news events. But what if it were the reverse?
What if there were a new, CFTC-authorized, fully legal version of Intrade up and running. And what if every columnist and TV commentator put some of their own money in an account and put money on outcomes—fully disclosed and public, for all their readers to see.
That way, when someone on TV says, “Hillary Clinton is a shoe-in to be the Democratic nominee in 2016,” they would also have to make another judgement: Is the 49 percent probability of that outcome priced into Intrade (RIP) too high, too low, or just right? Whatever their answer, how strongly do they believe it? Enough to put $20 on it, or $100, or $500?
Done right, Intrade, or a successor that has more of a clear legal status and regulatory oversight, can be a vehicle for accountability in punditry, not just a way to make baseball playoff games more exciting. And that would truly be something new under the sun.