Why Does Government Suppress Information?

The case for legalizing prediction markets

Sunday night is Oscar night! Think you know who's going to win? Want to make a bet?

The Hollywood Stock Exchange allows people to bet on which movies, actors, directors, etc. will take home Academy Awards. You can also bet on how much money a movie might make. It's called a prediction market ... except unlike other prediction markets, bettors can't use real money.

What fun is that? It's not only less fun, it's also makes the prediction market less accurate. People are more careful when they have real money on the line, and the chance of losing money weeds out the frivolous guessers. Prediction markets are valuable for predicting all kinds of things because the prospect of making money attracts people with knowledge, judgment, and a good sense of the future. More information is better than less. The people most confident in their information bet the most. That's why speculation is a sound market institution.

The promoters of the Hollywood Stock Exchange would have preferred the use of real money but—surprise!—government forbids it. The Frank-Dodd financial regulation law killed the real market at the behest of some in the movie industry.

Rich Jacobs, president of the Hollywood Stock Exchange, says that some studios wanted it killed because they didn't want public discussion of their plans.

"I think they were just concerned about bringing financial market transparency to an industry that hasn't had any transparency about finances," he said.

Why would people want a prediction market for movies?

"Thousands of users out there follow movies very closely," Jacobs said. "They have an opinion on how well those films will do, and they'd like to put some of their money (to) work."

And through the betting, knowledge would be revealed. Films more likely to succeed would probably get funded.

Not every studio opposed the prediction market. Lionsgate defended it. Good for them.

"It would give an opportunity for those trying to produce (small) films and get distribution ... by showing that the market thinks those films can make $10 or $20 million," Jacobs said.

The betting would start at the very beginning of the process.

"First, it's a script, an idea. Then, an actor or director signs on, and the value goes up. And by the time the trailer comes out, there's a very good sense of the valuation of the property."

But politicians called that "speculation" and "gambling." Can't have that! 

"The Commodity Futures Trading Commission did a three-year review and concluded that there was legitimate economic purpose behind this market," Jacobs added.

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  • Tim||

    Yes, we are really missing out on investments in bundled Bill Murray futures.

  • ||

    "Bill Murray" and "futures".

    Does not compute....

  • Libertard||

    In the one thing the DoD got right, they tried to start prediction markets up for terrorism and political instability:

    http://hanson.gmu.edu/policyanalysismarket.html

  • Fist of Etiquette||

    I would put all my money down on Armageddon II: The Revenge of Harry Stamper. Dodd cost me a huge payoff.

  • Old Mexican||

    The Frank-Dodd financial regulation law killed the real market at the behest of some in the movie industry.


    The Financial Regulation law is like an STD - the gift that will go on giving...

  • Old Mexican||

    Prediction markets are valuable for predicting all kinds of things because the prospect of making money attracts people with knowledge, judgment, and a good sense of the future. More information is better than less. The people most confident in their information bet the most. That's why speculation is a sound market institution.


    That's the social role of speculators - bringing experience and information to the game, making prices more ACCURATE providers of knowledge.

    The economics illiterates (normally, Marxians and Keynesians) give a moralistic spin to the role of the speculator because, supposedly, "they make money without toiling for it". This is, of course, nothing more than a silly and simplistic romanticizing of all labor as "hand labor;" the speculator is clearly bringing in HIS capital to bear, which includes his experience, knowledge, his lesser aversion to risk and his FUCKING SHIRT.

  • Fatty Bolger||

    Of course. Speculators work very hard to dig out every bit of information they can on a given market. Of course, that's not REAL productive work, like digging ditches or moving dirt around. Ask any Marxist type, he'll explain it to you.

  • Jack On||

    I wouldn't put a "moralistic spin" on it; anything anybody pays you to do is worth something, or you wouldn't be getting paid for it.

    That having been said, I do have a problem specifically with commodity speculators.

    If they drive up prices on say, oil or copper, and they're right, then it's brought stability to the market by easing higher prices into place instead of having a price shock. But if they're wrong, I, nor anyone else, get a check cut to us for the extra that we've paid over months for various goods, whose prices were driven up by commodity speculation. Essentially, it's nonvoluntary, force-placed insurance against a possible future. Sure, I can take public transportation to cut down at the gas pump, but energy and metals go into manufacturing and transporting almost all consumer goods, and so any price increases that speculation causes get priced into everything. Then, say six months down the road, when the prices collapse (if it was a bubble), then all that's happened is, I, and everyone else, paid a lot more for a lot of things than was actually warranted.

  • ||

    So you're saying, if we get the right people, some top men, it would be good for the government to determine which transactions have legitimate economic purposes.

  • Jack On||

    Not necessarily. But it also doesn't seem right for me to show up at your house, hold a gun to you, and demand that you give me five bucks because I personally believe the price of oil may go up in the future. Oh, but don't worry; if I'm wrong, I'll have to take a haircut. But you still don't get your five bucks back.

    That's essentially what commodity speculation does. The money you lose doesn't go directly to the speculator, as in my above example, but it's still being taken from you without choice based on someone else's speculation.

    Now, if we had a side market, where people could bet on this with real money WITHOUT it affecting the actual market price of the commodity itself (more like sports betting; providing no players or refs throw the game, the outcome of the game is not determined by the gambling on it), then we're onto something. Allow people to bet on commodity futures all day long; just don't let them, en masse, drive up the price of the thing they're betting on, which impacts everyone else.

  • Old Mexican||

    Re: Jack On,

    If they drive up prices on say, oil or copper, and they're right, then it's brought stability to the market by easing higher prices into place instead of having a price shock. But if they're wrong, I, nor anyone else, get a check cut to us for the extra that we've paid over months for various goods, whose prices were driven up by commodity speculation.


    Speculators are not army ants, Jack. Please, UNLEARN the macroeconomics crackpottery and think of economics as the science of acting MAN, not MASSES.

    While there may be a few fools that create a speculative bubble (and according to ABCT, it normally would be driven by cheap credit and artificially low interest rates), other speculators would not be as foolish. The net effect is not as dramatic as you would like to think.

  • Jack On ||

    I'm aware of the theory that people all act individually; I personally believe the evidence is much more in favor of mass psychology at work. Markets follow trends all the time; hell, even some of the main authors at Mises have come out against the EMH. They DO act like mindless ant swarms more often than not.

    Now, I completely agree with you that a huge source of the problem is artificially low interest rates. The FED should 1) be abolished, but failing that, 2) have much stricter oversight on it's ability to create credit bubbles.

  • ||

    then all that's happened is, I, and everyone else, paid a lot more for a lot of things than was actually warranted.

    If it was never your property in the first place what possible damages are you arguing? What has convinced you that you have some sort of right to an efficient price?

  • Jack On||

    By that logic, the FED is excused for causing all inflation. The entire point of free markets is to maximize efficiency. If they're not doing that, then what is the point of the market? And don't say it avoids coercion, because if the prices of all things are inflated due to the input of commodities, then I don't have a choice in the matter.

    Like I said, perhaps make a separate commodities futures market, that is independent of the price of the item itself. You're still letting people gamble money on their hunches, just not forcing the results on the rest of the public.

  • Vegard||

    Whats your alternative to the speculator? I would certainly prefer a speculator who loses money when he screws up over a government agency who sees its failure as reason to increase its budget? A secondary market without influence on the price of the commodity will not have the rationing effect that is necessary to avoid the price shocks that successful speculators alleviates.

    Besides, much of your consumption is of such a nature that it can be postponed. This allows you to take advantage of the lower price after the supposed speculative bubble is burst.

    Your argument that the speculator somehow is using force against you is just silly. That argument, if valid against the speculator, is valid against anyone bidding for the same commodities as you. Suppose some entrepreneur decided to produce a product he thinks will be popular and bids up the price of the commodities neccessary to make it. This is coercion as well by your logic if it turns out to be an unwanted product.

    You can actually think of speculation as a way of producing a product if you count the time its available as an essential part of the product.

  • ||

    "The Commodity Futures Trading Commission did a three-year review and concluded that there was legitimate economic purpose behind this market," Jacobs added."

    Does this validation matter? (except as a way to convince the economic illiterates). A branch of government decreeing that these voluntary transactions have legitimate economic purpose is the same as some other branch saying they don't.

  • ||

    DARPA tried an actual gambling site to predict terrorist attacks reasoning actual money may well foreshadow actual events. course the media over-reacted & the politicans shut it down & ran for the tall grass.

  • Ajay||

    Not into the long grass!

  • Velociraptors||

    *munch*

  • That austrailian guy||

    Shoot her!
    Shooooot heeeeeer!!!

  • Old Mexican||

    Re: OhioOrrin,

    course the media over-reacted


    No!

  • RM||

    There's an excellent sci-fi book based on a similar premise, Earthweb. It's not very well known but it's amazingly written.

  • ||

    Earthweb for free.

  • ||

    If government can control and suppress information, then government can control thought, and when government controls thought, it controls people.

  • MSNBC||

    That's our business model!

  • Our words condition your minds||

  • Jen||

    The Anatomy Awards are more interesting than the Oscars anyway.

  • Fist of Etiquette||

    Well, I missed this episode. Looked interesting.

  • mr. FIFY||

    Apparently, if Frank-Dodd didn't exist, America would be just like Somalia.

  • Ed Schultz||

    "Would be"?

  • Ralph Kramden||

    John Stossel is one of the stupidest persons on this planet. Why do we libertarians publish him?

  • Mr. Mark||

    I must disagree with your well-formed, clear, logical argument.

    I know lots of stupid people, and believe you me, John Stossel could NEVER even begin to compete with them for the title of stupidest person at a neighborhood, city, county, or state level, not to mention a national level or world level scale. It simply is not conceivable.

    I would have to say that the published opinion columns of John Stossel seem to indicate a level of clear, rational thought far superior to that of most other commentators in the media. I know people with advanced degrees from the most well-regarded snob schools in the world who impress me daily with their ability to find their way to the office. The most challenge I can get out of conversing with them is trying not to blow coffee out my nose when listening to their "expert" opinions on economics, finance, or politics.

    Stossel's columns are lucid, interesting, and address real problems with government busy-bodies sticking their noses where their noses ought not be stuck. I quite enjoy reading them.

    Perhaps you meant to identify some particular point in Stossel's column and dispute it by forming your own clear, intelligent counter-argument, but somewhere along the line you slipped on something and went skidding down the hallway through the ad hominem door?

  • tea partier||

    is he stupid?

  • Mr. Mark||

    Meanwhile, the states operate lotteries and specifically market to those with the hardest time paying for the necessities of life.

  • Combaticus||

    I'm still mad about this. I don't know jack about stocks, but I know movies. I could have made a fortune shorting the next Jennifer Aniston rom-com. Bastards!

  • Charlie||

    What's even worse is the ridiculous restrictions on gambling online.

  • ||

    Because our government is a criminal cartel, the enemy of freedom, destroyer of life, teller of lies

  • nike running shoes||

    is good

  • دليل||

    asfasfcasf

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