The rise of prediction markets: Innovation or speculation?

Prediction markets allow users to speculate on an array of real-world events—sports, the weather, the Golden Globes, Taylor Swift’s engagement, political outcomes, and military incidents. Monthly transaction volumes in these markets surged by 400% last year, with a disproportionately male userbase and a marketing strategy targeting everyday Americans.

The seemingly overnight growth of these markets, combined with their setup as financial exchanges, raises a host of policy issues, including concerns of insider trading, the economic purpose behind these markets, and lawsuits testing whether these markets comply with state gambling laws—lawsuits whose outcomes you can bet on in these same exchanges.

Are prediction markets a useful financial innovation or reckless speculation? Do prices in these markets produce valuable information, or is this another way to manipulate data? What is the line between investing and gambling? Even when that line has been crossed, should society have federalized gambling? Are our financial regulatory system, insider trading laws, and enforcement and detection systems equipped to handle a world of events whose outcomes are easily manipulable or already known?

On April 14, the Brookings Center on Regulation and Markets will host a diverse set of policy and thought leaders to discuss these questions and more. This event will be the first in a series on the topic of prediction markets. Online viewers can pose questions in advance by emailing [email protected].