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I mean it was kind of a snowball effect where the concept has been tried a lot historically in other areas and just kinda fails since the vast majority of the money that fuels the gambling industry is the 'idiot rube' money and your Fanduel/Draftking can issue significant bonuses to the idiot rubes (since it's them versus idiot rube meaning they get say 50% of deposits once the state has had their levies) which a Prediction Market/Exchange can't really do due to only receiving a comparatively tiny slice of the turnover. Polymarket got some attention off the Trump phenomenon, then Kalshi essentially decided to wade into a space that previously everybody assumed was completely verboten due to the Wire Act (Betfair New Jersey existed in the 2010s but they weren't brave enough to merge the pools) and the legislators didn't move with anywhere near the coordination and vehemence that they would have a decade ago.
Now the major flows are essentially people from states that don't offer legal Online Sports Betting (California, Texas etcetera) offering their 'idiot rube' money onto Kalshi and Polymarket. However increasingly lax interpretations of what defines a 'prediction market' has resulted in the Draftkings of the world essentially aiming to replicate their offering through a 'We are a prediction market but we have a privileged relationship with our one marketmaker (who is also Draftkings) which allows us to vertically integrate and offer the bells and whistles we'd offer to OSB customers' model which is forcing the hand of the state legislators to actually litigate. Which suits the OSB-providers since they want either 'DK-Predicts is legal so we can redesign our business to sit on Prediction Market rails' or 'Prediction Markets are now banned/heavily-taxed so we go back to the historical status quo.
A lot of the initial employees of the Polymarket/Kalshis/earlier PMs of this era in the world were frankly over-optimistic idiots trying to make a product that has already failed on multiple occasions that just lined up with the perfect spot in regulatory half-assedness that allowed it to be viable for a couple years. This has also played out where a lot of those initial employees have now been sidelined inside of the businesses in favor of 'wagering people' who are a lot more familiar with the marketing abilities required.
I think the situation is part of the moral dilemmas in creating carve outs. Any way you try to do it, you will end up with the same outcome which is people who want to do the illegal but lucrative thing end up simply skirting whatever the definition is so they are getting the thing but have just enough cover that they’re not technically breaking the law.
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Given that Robin Hanson worked at Oxford for a long time, I find the complete absence of discussion of the UK experience bizzare. The UK has always had much more legal access to less-harmful forms of gambling (primarily sports betting and low-stakes slots) than the US, and legal UK sportsbooks have always been allowed to take bets on almost anything. With the introduction of betting exchanges like Betfair, the UK has had fully legal prediction markets since 2000. And the only non-sports markets with enough liquidity to work were politics and "celebrity specials" like royal baby names.
Yeah I worked at the exchange for a bit. Love the product and the dream of it but I think they essentially already expressed everything a Prediction Market can be without very weird regulatory distortions like the current US situation
Above you said “over-optimistic idiots”. The amount of times I’ve thought that in tech and been wrong has been a lot. Sometimes right. The amount of societal value for real prediction markets seems high to me but I don’t see a customer. NGDP markets could be hugely valuable to the Fed, but who’s the customer? It’s more of a commons surplus.
Do you have any ethical issues being in gambling? I don’t hate all gambling - friendly poker games and fantasy football needs a little gambling to make it fun. Physical casinos seem to limit a lot of the negatives. The apps seem awful for society to me.
Corporatization of gambling seems like it’s been a bad thing to me.
I think gambling can, like most other potentially addictive activities or consumables have large negatives for those who tend to get addicted, and as such you should ideally be careful about removing too much friction around those things.
Making people gamble only in person at carefully selected places is less likely to be a severe problem than a gambling app in your pocket. Having to go to a casino to gamble means that it’s going to require a series of choices and behaviors that pulling out your phone and opening an app doesn’t. You have to put on pants and shoes, get into your car, drive for 10-15 minutes to a casino, walk in the front door, walk to the sport betting room, wait in line, and place your bets. To do the same on a sports betting app, you pull up the app, click three times, and it’s on. And you can potentially be betting before your frontal cortex catches on that you just bet $100 on a baseball game while momentarily bored in line at the grocery store. There’s also the issue of other people catching on. If your spouse drives to the casino every day to bet on baseball, you’ll eventually find out, because a daily hour long trip to a casino is … kinda hard to hide. Other people can see your car parked at the casino as well, so even if you have a clueless spouse, it only takes one nosey neighbor to mention seeing you at the casino and everyone will know it. Apps lack any potential embarrassment, because they are private. Remove all of that friction and I think it’s a bigger problem.
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I honestly started in the industry as a Betfair Exchange person who thought that the format just needed its time in the sport, but then I worked in a bunch of other parts of the industry and I came to understand more of how everything actually clicks together. The fundamental issue with Prediction Markets is that without 'idiot flow' there's no good incentive for anybody to participate at scale against other rational actors, and 'idiot flow' would generally be happier on other forms of Online Betting since they get substantial rebates for the same losses.
I was on the committee of the Cambridge University Poker Society during the Poker Boom, and a few online poker execs came to speak to us - partly to identify potential future employees (though none of us wanted to work for them), and partly to pitch sponsorship deals to the club. At the time the sites definitely wanted to sign up smart players and things like rakeback were set up in a way which would preferentially keep non-degens on the site. I think the realisation that the flow of money into the ecosystem is fish-limited and that the rake is competing with the pros to get the fishy money came when the overall market got worse post-boom.
Also, in the era of a small number of networks and many skins, a skin that preferentially attracted smart players would be able to free-ride off other skins on the same network signing up the fish, although that wasn't obvious to me at the time. The best sponsorship offers we got were from obscure sites feeding the Party Poker network.
Poker and horse racing are different than most casino games since they make their money from the rake and not from people losing. Since poker has a positive expectation if you're good enough, it will attract professionals who will bet larger amounts of money than the typical schlub looking to gamble. There are definitely high rollers who will drop large amounts on craps and whatnot, but unless you're operating a high-end casino you can't count on them the way Vegas seems to be doing these days. Poker sites keeping rakes low is just basic cost competition.
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Back when I was more heavily involved in politics I made a few hundred quid betting on politics on Betfair. Great product, great idea, but hasn't worked beyond politics.
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