Classic ethical, moral and religious injunctions against gaming are relatively inapplicable to election contracts.

A common moral argument against gaming is that gaming is not constructive, is zero-sum, and gives dishonest rewards. Election markets are constructive, positive sum, and reward honest effort and skill, and on those merits do not meet the moral injunctions against gaming. 

Another moral argument is that gambling is predatory and exploits human weakness. With classical gambling, there is an immediacy and instant gratification that leads to addiction. However, the proposed markets diminish the instant gratification component by focusing efforts on long-term predictions leading to election day, thereby reducing the potential for addiction. 

Political prediction markets in the UK tell an encouraging story on the relation between problem gambling and election markets. Sites such as Smarkets offer election lines and devote resources to marketing them even though they are nowhere near as profitable as contracts in sports and other areas. At the same time, they do not offer products such as casino games. Driven by a combination of reputational risk and company values, they have concluded that they have a long-term interest in contributing to the public interest, aggressively self-regulating to stay within the limits of gaming laws, and deterring problem gamblers from damaging their brands. 

We believe that the economic purpose and broad public interest benefits of proposed election contracts outweigh concerns related to problem gambling. At the same time, we recommend properly structuring prediction markets to reduce potential predatory and exploitative behavior.

This post is adapted from the September 2023 comment submitted to the CFTC by Solomon Sia and Pratik Chougule.