A Christian perspective on prediction markets

Prediction markets help give us as accurate a picture of the future as we can get. But if gambling is morally dubious from a Christian perspective, does that mean we shouldn’t use them?

What are prediction markets?

(If you already know what they are, feel free to skip this bit.)

A prediction market is a market where people can trade contracts that pay based on the outcomes of unknown future events. The resulting market price represents the collective prediction of all those involved in the market.

In practice, it works like this: A question is defined e.g. who will win the 2020 presidential election? Will there be a war between China and Taiwan by a certain date?

There is a pay-out based on what happens: if Biden wins in 2020, the market pays a dollar to those owning ‘Biden wins’ contracts. If Trump wins, the market pays a dollar to those owning ‘Trump wins’ contracts, etc.

This gives people an incentive to buy into the market — you think Biden will win, so you buy a contract. Or you think someone else will, so you buy a contract stating they will win instead.

Participants can buy and sell contracts with each other, creating an overall market price, which goes up or down based on this trading . If you’re convinced Biden will win, and almost everyone else is, the market price will be quite high, maybe 80 cents. This makes sense — if his re-election is almost certain, then you wouldn’t expect to make lots of money by betting on it. If he is re-elected, you win a dollar, a 25% profit on the market price.

If you’re convinced Biden will lose and Trump will beat him, even though the market price is 80 cents, you can buy a ‘Trump wins’ contract at 20 cents. If the real estate developer from New York does indeed win, you will get a dollar, making a 400% profit.

A key feature of prediction markets is the changing price. If some scandal imperils Biden’s campaign, then suddenly his election won’t seem as likely, and the resulting market price will fall, perhaps to 65 cents. This reflects the fact that participants are now buying more ‘Trump wins’ (or whoever else they think might win) contracts, and selling ‘Biden wins’ contracts.

It’s this fluctuating market price that makes prediction markets predictive. Before the election, we don’t know what will happen. We can make reasonable assumptions, but we cannot have certainty about something as complex as an election, a sporting event, or a war. We can, however, articulate the likelihood of it happening and express that as a percentage. Prediction markets give people an incentive to do that accurately (by making them win or lose money based on their accuracy) and allow us to aggregate the collective wisdom of all participants. The market price is a probabilistic forecast of whether Biden will win, i.e. 80 cents means an 80% chance.

Why is gambling wrong?

The issue here is that prediction markets are basically gambling, right? You play the market and risk your money for an uncertain return.

There isn’t any specific biblical command against gambling as far as I can tell, but broader biblical principles and ethics indicate it’s a bad thing to do. I’ve synthesised some reasons against it from a couple of church ministers/pastors:

I don’t expect you to be motivated by any of that if you’re not a Christian, and I’m not trying to convince you of the ills of gambling here (although you should read this for some context on contemporary gambling and addiction). Instead I’m trying to figure out whether Christians should put prediction markets in the category of gambling – which might well lead to Christians lobbying against them, as well as personally abstaining.

So are prediction markets sinful?

Everyone has to make predictions, even if implicitly: Should I learn Python? Start a blog? Etc. (Jury still out on those…) As explained above, the Bible encourages Christians to be shrewd. There’s no particular sense in modern Christianity that you should avoid financial investments — indeed, it’s eminently sensible, and is affirmed in one of the links above. There is no biblical command against investing, it has societal benefits, you can choose your risk level so that you are unlikely to lose everything, and it’s good to be able to pay for yourself and not rely on the charity of others.

Prediction markets are a new category, and I don’t think they’re out-of-bounds for Christians for two main reasons.

They provide genuine societal benefits, just like stock markets do, by showing what people really think about an issue. They could fund investigative journalism. They could allow people with illegible expertise to exert a greater influence on policymakers. There is further interesting discussion of the uses (and limits) here.

You likely have to work quite hard to beat a prediction market (like the real stock market), and the work is socially beneficial. This makes me conclude that being involved is more like ‘real work’ in the biblical sense than classic gambling.

There are a couple of important caveats. A prediction market in someone’s death can create an incentive for assassinations e.g. it’s unlikely that President Macron of France will die in office, so presumably a prediction market would indicate as much. This means you could buy cheap contracts that would pay out an enormous return if he died, thus incentivising assassinations. I’m sure there are other concerns too, perhaps around people’s prospective cancellation.

The love of money is the root of all evil (1 Timothy 6:10) so an obsession with beating prediction markets can be morally corrosive. But I don’t think it’s much riskier than any financial markets-related job, like being a day trader, and Christians don’t generally consider them out-of-bounds.

Prediction markets can become an idol like anything else, and they aren’t the only way to find or know truth. But when it comes to questions of public policy and predictions about our social and political future, they’re a useful tool — and Christians should be willing to support their use.

Further reading: Astral Codex Ten on prediction markets.

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