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The social costs of gambling, particularly compulsive gambling, cannot be so easily dismissed. I would encourage you to visit your local Gamblers’ Anonymous group or seek out addicts’ stories of loss and despair to get a fuller picture of it. As for expected losses, yes, there is a legitimate trade in securities in which some will earn money from their investments and some will lose money from them. Securities like stocks, bonds, derivatives, commodities, and so forth have real things of value underneath them, like business income and stuff made from the commodities. (And it’s not a minority who earn long-term gains from these; there are entire pension schemes covering millions of people that are funded from them from 401(k)s to TIAA.) Predictions, on the other hand, are valued solely based on human estimations. That’s not in itself a problem, but the issue is that predictions markets, unlike securities markets, are not regulated. Compare the fact that insider trading of securities is illegal and punished with fines and imprisonment, while in a predictions market, insider trading is incentivized and occurs with unsurprising frequency (e.g. big wins by a privileged few who bet on the timing of military actions). Market manipulation is the problem, not that some will make the wrong bets. The rules and conditions of the game must be fair, even if the outcome of the game isn’t. And I haven’t even begun to mention the issue of the things you can bet on in prediction markets that are ethically problematic, like the probability of harm (including death) occurring to someone or a group of people. There was a recent episode of Last Week Tonight on the subject; John Oliver’s team expresses these concerns with more humor and better framing than I can give myself: https://youtu.be/ZN4njIQcSR4?si=ocpAaKnijf7AUrOp |
You might have noticed that I was not dismissing the costs of gambling. I was pointing out that merely pointing to the cost does not establish that a thing should not exist or that it should be regulated. Just as pointing to the benefit does not establish the opposite. Rather, that depends on whether one regards the benefits as worth the costs, which is not something established scientifically, but is a political matter based on your preferences and ideology.
> The rules and conditions of the game must be fair, even if the outcome of the game isn’t.
What counts as fair depends on the standard you use. I say what is fair that which serves a social function. Insider trading serves a social function because it more efficiently communicates knowledge about production to others. The arbitrage of insider trading which people abhor motivates insiders to eliminate those information asymmetries by engaging in insider trading. The specific profit that insider trading endows to insiders which people lambast as unfair is, in fact, the source of its fairness, because it communicates knowledge previously unknown to the market.
Communication of knowledge is also a productive activity. Laws which restrict it are unfair because they preserve or limit the means by which information asymmetries are eliminated. Laws against insider trading force information asymmetries to remain, causing a permanent rent to exist. The insiders, rather than reaping a temporary profit that communicates information, now are motivated to benefit from their information in ways that do not share it with society at large; their insider information becomes an economic rent, but one without any social function. This is quite unfair.
The social function of prediction markets is similar to that of insider trading. If you want to perpetuate unfair rentseeking, then please go ahead and regulate it.