When a bet may not be gambling – the puzzle of prediction markets

By Filippo Annunziata, Professor of Financial Markets and Banking Legislation, Department of Legal Studies, Bocconi University

Regular stock exchange observers will know all about prediction markets. Users buy and sell contracts that pay a fixed sum if a specified event occurs – a sports team wins a match, a candidate is elected.

The price at which such a contract trades represents the collective estimate of the probability of the event. It resembles a bet in function and a derivative in form. Whether the law classifies it as the one or the other has consequences that extend well beyond the circle of specialists. Lawmakers and courts…

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