August 7, 2024 — FOR IMMEDIATE RELEASE
Washington D.C. — On Wednesday, the Hamilton Lincoln Law Institute (HLLI) filed a joint comment letter on behalf of Scott Alexander of Astral Codex Ten, Maxim Lott of ElectionBettingOdds.com, and HLLI’s director Theodore H. Frank against a proposed rule by the Commodity Futures Trading Commission (CFTC), which would categorically ban all prediction markets for political elections and many other events. The proposed rule equates political prediction markets with “gaming”—equivalent to betting on horse races or the Super Bowl.
The letter argues that this rule would exceed the Commission’s authority under Section 5c(c)(5)(C)(i) of the Commodities Exchange Act because political elections do not fall within the definition of “gaming” nor in any other categories of events the Commission can regulate—those being illegal activity, terrorism, assassination, or war.
HLLI’s letter contends that the blanket ban on political event contract also violates the statute, which only permits the Commission to ban regulatable contracts after it determines particular contracts are “contrary to the public interest.”
Instead, as the letter points out, prediction markets promote the public interest by allowing all citizens to know the likely outcomes of future events and hedge against the risk of unfavorable developments. As surveyed by Maxim Lott and discussed in the letter, economists have consistently shown prediction markets equal to or superior to most sophisticated individual predictors. Markets provide the public with reliable and informed information untainted by wishful thinking, partisan bias, and resilient against polling error. In this way, they promote trust in democracy in an age of fractured media plagued by modern methodological challenges to accurately polling the public.
The Commission expressed vague concerns event contracts might compromise election integrity or force the CFTC to act as an “election cop,” but no evidence supports these fears. Scott Alexander summarized the evidence in his May 13 newsletter, which the comment discusses. For years foreign markets have permitted staking money on British elections, and no negative outcomes have come to light. This makes sense because there are “hundreds of groups that care deeply about the outcome of elections,” often with enormous financial interests in them—so it would be “pretty crazy” if bettors could alter electoral outcomes. Other futures contracts simply do not require the CFTC to get involved in underlying events. “If someone tries to manipulate nickel futures by blowing up a nickel mine, I think (I’m not an expert) this the FBI’s problem, not the CFTC’s.”
The CFTC will likely adopt a final rule in the coming months. Maxim Lott, Scott Alexander, Ted Frank, and HLLI hope the Commission does not adopt a rule that categorically bans prediction markets like the one proposed does.
Should the Commission disregard the public benefits of prediction markets based on its implausible definition of “gaming,” HLLI may consider taking further legal action to protect the interest that all Americans have in reliable political prediction markets.
The proposed rule is 89 FR 48968, and the Commission will accept additional public comments through tomorrow, August 8, 2024.
* * *
Scott Alexander is the pseudonymous author of the Astral Codex Ten Substack and, before that, of the influential blog Star Slate Codex. He and his active readership engage in vigorous debate on the site, often concerning Bayesian (probabilistic) analysis of scientific and political controversies. In addition to his writing, Alexander has contributed to academic and popular discussions on prediction markets, emphasizing their potential to improve the decision-making processes.
Maxim Lott is a journalist who has reported on prediction markets since 2007 and who has run the website ElectionBettingOdds.com since 2015. The site is a journalistic resource aggregating betting odds from US and overseas prediction markets. Lott’s reporting has been published by ABC News, Fox News, Newsweek, the New York Post, Reason magazine, numerous other outlets, and on his own Substack newsletter Maximum Truth.
Ted Frank is an attorney and co-founder of HLLI. He supplements his income through successful participation in prediction markets and through political commentary in publications and Twitter.
* * *
Founded in 2019, Hamilton Lincoln Law Institute is a nonprofit public interest law firm that challenges improper restrictions on speech, administrative and regulatory actions that exceed constitutional limits, promote rent-seeking, or otherwise improperly created deadweight loss.
As a nonprofit, tax-exempt organization as defined by section 501(c)(3) of the Internal Revenue Code, HLLI relies on support from individuals and foundations that share a commitment to individual liberty, free enterprise, and limited government. To learn more, visit http://hlli.org.
For more information about this case, please see the comment letter or contact the attorney below:
Frank Bednarz, Senior Attorney, (801) 706-2690, frank.bednarz@hlli.org.