The popular website Intrade allows its users to bet on the odds of almost anything — like whether Syrian President Bashar al-Assad will get ousted by a certain date, or whether the movie Argo will win best picture at the Oscars.
This week, Ireland-based Intrade announced that U.S. users will have to unwind their bets and shut down their accounts by the end of the year. That's after the Commodity Futures Trading Commission sued Intrade for operating an unregistered exchange.
Transactions on the site have long resided in a gray area in the U.S., with little clarity as to whether they represent gambling, futures trading or something else that should not be regulated — leaving some questioning the legal basis for cracking down on so-called "prediction markets."
'More Accurate Than Pundits'
"Conceptually, to an economist, there's not a difference between betting and trading — apart from the fact that one sounds more polite than the other," says Justin Wolfers, who grew up in Australia working for bookies taking bets.
Now a University of Michigan professor who's studied Intrade, Wolfers says the site is not just a venue for winning and losing money. It also generates news as a byproduct, he says. That is, the odds on Intrade are almost always right.
"It tends to be more accurate than pundits, it tends to be more accurate than polls, and in the past it's even more accurate than very sophisticated poll-watchers like The New York Times' Nate Silver at FiveThirtyEight.com," Wolfers says.
To use Intrade, members place bets on yes-or-no questions. Much like a stock, the price of placing a bet fluctuates based on demand. And when the outcome is determined, the payout is either $10 or nothing. If you win, your profit is that $10, minus the price you paid to place your bet.
According to Thomas Bell, a professor at Chapman Law School in California, the CFTC considers those transactions enough like pork belly futures — which fall under the commission's authority — to be shut down.
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