As noted earlier here, here and here, the federal govenment’s crackdown on Internet gambling is a a wasteful exercise in nanny-state futility, but also damaging to important American markets. Following up on that theme, University of Texas finance professor Paul Tetlock and Robert Hahn, director of the American Enterprise Institute-Brookings Joint Center, pen this NY Times op-ed appropriately entitled “Short Odds for Ignorance” in which they make the point that the Internet gambling ban will likely shut down important and productive information markets such as TradeSports:
The bigger economic story is how this act, by effectively prohibiting Internet betting, could unintentionally slow the emergence of new tools that have the potential to improve the productivity of the private sector and the government. Sadly, this is an aspect of the measure that both its supporters and its opponents seem to have overlooked. [. . .]
For instance, we now have markets for predicting political and economic events, where you can wager on the monthly unemployment rate or the outcome of the presidential race. (If you visit TradeSports.com, you can bet on Hillary Clintonís chances of becoming the next president: a contract purchased for $1.91 would yield $10 if she wins ó implying that the senator has about a 1 in 5 chance of winning.)
Why should we care? Because information markets, which essentially reflect the collective wisdom of savvy bettors, can help us make more accurate forecasts. Information markets have outperformed experts in a number of areas, whether itís predicting point spreads in football games or elections or printer sales. There are more than 20 Web sites that offer information-market securities, including those run by Goldman Sachs and the University of Iowa.
