Personally, I'm all for efficient markets...

[randomness]

...but how does this differ from sports gambling, exactly?

Red Sox Reward Futures Traders Who Favored Them Over Yankees

"The Boston Red Sox, who became the first team in Major League Baseball history to win a playoff series after trailing three games to none, rewarded the futures traders who made them favorites against the New York Yankees.

"The payoff was even greater for speculators who wagered on the Red Sox when their futures contracts were selling for pennies on the dollar.

"Traders were paying more for Boston contracts than for New York futures before the American League Championship Series, even though the Red Sox haven't won baseball's title since 1918, and the Yankees have won four of the past eight.

"``It's phenomenal how efficient the sports markets are,'' said Mike Knesevitch, a spokesman for TradeSports.com, an online exchange where futures contracts were traded on the series. ``I'm always amazed.''

"Traders on the Dublin, Ireland-based exchange who were betting on a Red Sox victory were able to redeem contracts that were almost worthless four days earlier. Traders were able to increase their investments 40-fold if they bought Boston contracts at their low and held them until today."

http://quote.bloomberg.com/apps/news?pid=10000103&sid=aMJUmSbh.O8o&refer=us

Comments

[r-ness.livejournal.com]

Well, the difference between the stock market and, say, real estate in particular and forms of gambling such as casino games or lottery is that the stock market is a zero sum game.

This is an interesting definition but I think it doesn't actually distinguish between "gambling" and "speculation" very well, particularly in this case. TradingSports.com makes its money on commissions. Conceptually, you're betting against everyone else, not "the house", and TradingSports.com is taking a fee for providing the venue and the service.

This is a lot like playing poker at Foxwoods; the house gets a cut--for providing a table and a dealer--but you're actually playing against the other players.

[awfief.livejournal.com]

Conceptually, you're betting against everyone else, not "the house", and TradingSports.com is taking a fee for providing the venue and the service.

Right, like a stockbroker. Although then I have to wonder why poker falls under gambling and not 'stock market' stuff.

[r-ness.livejournal.com]

Although then I have to wonder why poker falls under gambling and not 'stock market' stuff.

Yup, exactly.

[statisticalfool.livejournal.com]

Well, it does in some respects, and not in others. This isn't black or white to any extent: The stockmarket is less like gambling than the IEM, which is less like gambling than Tradesports, which is less like gambling than LadBrokes, but there are still many meaningful ways in which picking stocks is gambling, and some in which I'd say that picking stocks is more gambling than playing poker.

Other reasons why tradesports gets a boost: we reward services that use markets as a medium, because in some areas, they manage to be more efficient, transparent, and cheaper to use than relying on focused power, like LadBrokes. Tradesports only cares about providing an environment in which people will want to use tradesports a lot, and therefore rack up transaction fees; LadBrokes wants an environment where they can maximize their vig while minimizing their risk.

Considering that at ladbrokes right now, you're paying about 8% vig either way on tonight's game 7, while at Tradesports, the market spread is about 1% (plus .4% transaction fee), maybe there's some good use for that heuristic.

[r-ness.livejournal.com]

Considering that at ladbrokes right now, you're paying about 8% vig either way on tonight's game 7, while at Tradesports, the market spread is about 1% (plus .4% transaction fee), maybe there's some good use for that heuristic.

Sure, and by rights either market pressure should force Ladbrokes and other bookmaking services to lower their spreads, or face going out of business.

I think you're focusing on something I agree with you about: that we should encourage transparency and efficiency of markets. My question is why there are legal sanctions against gambling and why when you call it investment, or even speculation, it's suddenly ennobled by this renaming and those legal sanctions vanish, even when fundamentally the activity is the same.

It's a social question, really, and one which I find intriguing.

[statisticalfool.livejournal.com]

Well, I agree with you, the grey areas that ideas markets are starting to inhabit are interesting, and I'd need to be less busy at work to deal with this in any depth, but:

1) Tradesports is by no means legal in the US; at best it's dark grey.

2) Stock market investing for some people, and in some situations, is just a way for people to risk money in order to make more, but the stock market serves many many other intrinsically valuable purposes with regards to how our economic system fundamentally works. The gambling part of it is integral to how it works, but not so integral to its goals.

[r-ness.livejournal.com]

I think you've hit the point I was looking for.

Tradesports is by no means legal in the US; at best it's dark grey.

While Tradesports is dark grey, the Iowa Electronic Markets seem a lot less grey.

the stock market serves many many other intrinsically valuable purposes

From http://www.biz.uiowa.edu/iem/about/:

"The Iowa Electronic Markets are operated by faculty at the University of Iowa Henry B. Tippie College of Business as part of our research and teaching mission...

"We, and many of our colleagues at other institutions, use the markets in classes as a pedagogical tool. We have found them to be an excellent way to focus attention and give hands-on experience with real-world markets.

"As a research tool, the markets provide us with an unparalleled laboratory in which we can study individual trading behavior as well as market level performance.

"The quality of our data is improved by interested traders participating in the markets."

So, if I generalize correctly, the argument is: "We're not gambling for the sake of gambling. The gambling is essential to our operation, but isn't the intrinsic purpose of what we're doing. Therefore, it's okay."

It does seem that if the Iowa Electronic Markets were doing millions of dollars worth of trading every day, they might start rethinking things.

By this measure, Tradesports.com is in a much darker grey area.

Thanks! This is helpful.