🔎It's not ethical

Another common criticism of prediction markets is based out of ethical concerns: betting on some events would be immoral. Their arguments state that either gambling itself is immoral or that gambling on some specific events (ex: war or terrorism) is immoral.

In a free society, people should be able to willingly contract. While we understand some of the issues with classic gambling platforms using predatory advertising and people suffering from addiction, we haven’t seen those things in the context of prediction markets. Advertising tends to be quite discrete and our efforts to find a case of a person suffering from a prediction market addiction have remained unfruitful.

It doesn’t mean that it’s impossible and cases may rise if prediction markets become more successful, but we expect this to be in line as with stock/crypto trading addictions: Comprise a very small part of the market producing an almost negligible amount of harm compared to the benefit of the markets (in our case, the externalities produced by people having access to the forecasts).

For markets about sensitive issues (war/terrorism), it seems that the ethical reticence comes from some reasoning which can be summarised as (a) “none of us should intend to benefit when some of them hurt some of us.” [4].

People benefiting from harm made to other people can provoke revulsion and seem abhorrent. This has led to the shutdown of the Policy Analysis Market [22] project of the US pentagon, that people mistook as a prediction market on terrorism, and created public outcry. The project was actually more complex than a terrorism future market, but even if it were, we’d argue that it would have been moral.

To analyse the moral argument (a) “none of us should intend to benefit when some of them hurt some of us.”, we have to look where it comes from and why it is generally a good idea to apply it:

• (b) “Hurting people is bad”

• (c) “People do stuff they benefit from”

• Thus, if people benefit from other people being hurt, they will hurt them. So (a).

This reasoning will be correct in a lot of cases, but doesn’t apply to prediction markets. The money to be made by being right in a prediction market is very unlikely to be the justification for a country to declare war. And if a prediction market is used to predict terrorism, it is way more likely for this information to be used to prevent the terrorist act than for the terrorist act to be motivated by winning the prediction.

Having better information about risks of wars and terrorism would lead to less wars and less terrorism. Therefore banning prediction markets on those issues would be the action leading (b) people being hurt, so banning them is the immoral action here.

Not everyone will share our moral reasoning, but contrary to government-run prediction markets which need support of the public/politicians, the permissionless nature of public blockchains means that those markets can operate independently of public/politician opinion and mistaken ethical concerns would not lead to their shutdown.