Opinion: Trying to Parse Whether Prediction Markets are Gambling or Investing is Pointless
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A study released this week by Ipsos, “one of the largest market research and polling companies globally,” posed a question of whether prediction markets more closely resemble gambling or investing. I’ll pose another: is there really much of a difference?
Ipsos polled “a nationally representative probability sample of 2,363 general population adults aged 18 or older.” Sixty-one percent said prediction markets are closer to gambling than investing. Only 8% said prediction markets are closer to investing.
Meanwhile, 84% viewed bets placed at sportsbooks as gambling. Only 1% viewed that as investing.
That’s interesting to me because the lines between gambling and investing are far blurrier than a study like this would have one believe, if they exist at all. The answer to whether prediction markets are closer to gambling or investing is obviously “Why not both?”
Of Course Prediction Markets are Gambling…
Let’s get the easy part out of the way. Of course prediction markets are gambling.
If I buy yes on a contract that the Kansas City Chiefs win the Super Bowl, I’m gambling. I’ve just placed a sports bet, regardless of what Mike Selig and the Commodity Futures Trading Commission want to call it. Hopefully, that’s incredibly obvious.
If I buy a contract that Aubry Bracco will win Survivor, I’m also gambling. It’s not a sports bet, but it’s still gambling.
Either way, I’m taking a thing of value, “staking it on a contingency” (Merriam-Webster’s words, not mine), and hoping I receive more of it back than I invested. Oops, there’s that word again.
…But So is Investing
Here’s the thing, though. Investing is gambling, too. Every investment is inherently a gamble. Consider another M-W definition of gambling: to bet on an uncertain outcome.
When I bought my condo, I gambled. I was betting that the tree which eventually fell outside my window would fall away from the window rather than on it (thankfully, it did), that the housing market wouldn’t suddenly crash, and that a series of sinkholes wouldn’t ruin every street outside, sending my hometown viral for all of the wrong reasons.
Sure, the smart money was on the property’s value increasing. But I was betting against any number of possible developments that could lessen its value.
That’s a gamble.
Buying Apple stock is a gamble. You’re gambling that the stock will appreciate. If you’re wrong, you lose money. It’s an investment, but it’s also a gamble.
Some investments and some gambles are better than others.
I play tournament poker at a fairly high level and sell some of my action to my friends. When they buy pieces of me, they’re investing in me, but they’re also gambling. On average, the expectation is that I’ll win them money, since I’m a profitable player over my lifetime. In that sense, it’s a smart investment. But the most common outcome of any one buy, due to the mechanics of tournament poker (even the best players lose much more often than they win), is a loss.
They understand that, but they’re willing to gamble.
Insider Trading and Other Thoughts
There are other angles and reasonable ways to examine gambling, investing, and the blurry middle ground between the two.
For one thing, what about insider trading? We’ve seen this phenomenon over and over on prediction markets, with minimal, if any, consequences in most cases.
I suppose that when you know the outcome of the wager, you’re definitely investing and not gambling. It’s simply a matter of getting down your capital, followed by an absolute certainty of reaping a greater sum in return.
Maybe you’re just gambling that there will continue to be minimal oversight and consequences?
Does a person’s expectation play any role? For example, consider a professional sports bettor who has a large sample of winning play. Is that person investing, or are they gambling? I would say obviously both, but a reasonable person could say every dollar they put into sports betting is an investment with an expectation of X return (whatever their stake is multiplied by their lifetime ROI).
But then, if I bet on the Chiefs to win the Super Bowl, is it a gamble? Whereas if Billy Waters does it, he’s investing?
Trying to parse gambling versus investing seems strange to me since it’s so clear that all investments are gambles on some level. The regulatory questions around prediction markets will ultimately be decided by people way higher up than I am on the pay and social clout scales. Until then, whether you want to invest or gamble on them is up to you (Nevadans excepted, for now). But I think we need to start normalizing the idea that investing and gambling are basically the same thing.
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