A key question in debates over political betting regulation is whether contracts on the outcomes of elections constitute an illegal form of gaming.

We believe election contracts have important characteristics that distinguish them from clear cases of gaming.

First, skill and knowledge predominate over chance in predicting election outcomes over the long-run, which indicates that these contracts are distinct from games of pure chance. We know this through our long association, collaboration, and interviews with leading forecasters in existing political prediction markets—in some cases dating back to the Intrade markets. Academic models of prediction markets also support that prediction markets will differentially reward participants with the most accurate hypotheses.

Second, election markets differ meaningfully from skill based gaming markets such as poker or sports betting because of their economic purpose, either as a hedge or for price basing.

Third, unlike most traditional gaming markets, election markets provide benefits to the public interest even to non-market participants. These include: improved forecasting capacity, trust, aggregation, and information dissemination effects.

The fact that political betting lines are offered in traditional gaming venues does not negate that political betting is meaningfully distinct from traditional gaming. Speculators, disinterested gamblers and retail interests alike are part of a normal and healthy market. The speculation that exists on political event platforms today serves as liquidity provisioning that enables a hedging and price basing platform.

This blog post is drawn from our comment to the CFTC, which is available here.