Document Type
Article
Publication Title
Rutgers Law Review
Publication Date
2006
Volume
58
First Page
339
Abstract
(Excerpt)
After the death of Pope John Paul II, a papal conclave convened to elect his successor. The media speculated that certain candidates were the "frontrunners" to watch. At the same time, pools formed on web sites to predict the outcome of the conclave, either for fun (using virtual money) or for profit. Throughout the days that the conclave met in April of 2005, trading continued, and ultimately the various markets predicted both that Cardinal Joseph Ratzinger would emerge as the next pope and that he would choose the name Benedict XVI. After the white smoke signifying a new pope had cleared, the online traders had accurately predicted the outcome of the conclave when the new Pope, the former Cardinal Ratzinger, emerged to give his first official speech from the Vatican balcony.
Similar pools appeared around the trial of celebrity Michael Jackson in 2005 on various child molestation charges. During the course of the trial, several online markets emerged to trade on the outcome. The public had always expressed an intense interest in Jackson's personal life, and the latest controversy provoked further speculation. Although trading shifted during the presentation of evidence by the prosecution, ultimately the market strongly predicted Jackson's acquittal. When the verdict was read by the jury, Jackson had been acquitted of all charges.
With both the papal conclave and Michael Jackson verdict, the various pools attracted a large number of participants and ultimately predicted the outcomes accurately. In both instances, these pools acted as information markets, also known as "prediction markets" and "idea futures." As we have written elsewhere, information markets are an emerging economic field in which individuals are provided incentives to trade on their knowledge and in the process produce predictions. The economic literature has defined an information market as a setting where "participants trade in contracts whose payoff depends on unknown future events." The point of a particular information market, however, is not to provide financial or reputational gain to the participants or to raise capital. Rather, the organizers structure the market to gather information that will aid in determining the outcome of a future event.
This Article focuses on why information markets have covered certain subject areas, sometimes of minor importance, while neglecting other subject areas of greater significance. To put it another way, why do information markets exist to predict the outcome of the papal conclave and the Michael Jackson trial, but no information markets exist to predict government policy conclusions, Supreme Court decisions, or the rulings in Delaware corporate law cases? Arguably, from either a dollar value or a social utility perspective, these areas of law and business would be more important than the outcome of, say, the Jackson trial. Why, then, do these "frivolous" markets on celebrities like Michael Jackson thrive, while others with more serious aims have yet to be started?
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Internet Law Commons, Law and Society Commons, Supreme Court of the United States Commons
Comments
Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=903179