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Prediction or gambling?

There's a new site on the NZ web and it's already created a bit of a stir.

I'm talking about iPredict which, according to the blurb, "allows users to trade on their predictions with real money over a variety of political and business events".

The brainchild of a liaison between Victoria University and The NZ Institute for the Study of Competition and Regulation, iPredict allows people to put their money where their mouth is when it comes to predicting future trends or events in business and politics.

Billed as a valuable research tool, it's claimed that the site (like similar ones overseas) will become an accurate and powerful indicator to the outcome of elections and market movements.

Sounds like a great idea.

But isn't this just another form of online gambling?

Here's how it works...

If you think you've got the inside running on an upcoming political event or movement in the markets, you can buy shares in the outcome of that event for some price that is less than a dollar each.

The ratio of that price to the $1 maximum price constitutes the odds your "investment" will return if you are right.

So, if the prediction is that Winston Peters will become the next Prime Minister and the shares start at one cent each, that's odds of 99:1. If Winnie did become PM, every cent you spent on shares would return you a dollar. With all that money you could buy every one of the very many pigs that happened to be flying past your window at that time.

The website quotes, as an example of how accurate this methodology can be at predicting political outcomes, that the university of Iowa's version has successfully predicted the outcome of every US presidential race since 1988.

So just how can these systems be so damned accurate at predicting the future?

Well people are naturally greedy and even though you're not allowed to engage in "insider trading" by using privileged information to make trades to your advantage on the stock market - you can do just that on iPredict.

It seems that there are often a lot of people who spot the chance to make a quick buck by leveraging "inside knowledge" to leverage their money into a somewhat larger amount through systems like this.

For these people, iPredict isn't gambling - it's a simple way to boost their income.

But what about the rest of us? Where do we stand?

Well if you really do have a good feel for the political or economic climate then you could stand to make a bit of dosh from iPredict.

The site operators have been wise enough to limit any single trader's cash-input to a maximum of $1K every six months - but I still wonder if a link to one of the gambling addiction websites or phone lines might not be a sensible thing to include as well. Problem gamblers will bet good money on two flies walking up a window-pane so I suspect there'll be more than a few attracted to this new form of gambling.

Mind you, I guess the same could be said about the sharemarket -- except that iPredict has a much greater "fun" aspect than just betting on the value of boring business stocks rising and falling.

So how do iPredict make money?

Well they take 2% of every dollar people withdraw from their account. If you bet wisely and end up with $10K in that account, it'll cost you $200 to withdraw it all, not too bad really.

It should be noted of course that iPredict offers no protection for "investors'" funds. If the venture goes belly-up then everyone with cash in their account will simply be an unsecured creditor -- it's not a bank.

However, my hat is off to these guys. It's a clever way to spin a buck out of those who want to fancy their chances and, by providing the potential for a healthy profit to those with insider-knowledge, it's a great way to deliver potentially very active predictions across a wide range of events and areas.

My only concern is that if it's a little too accurate and does too good a job of bringing the political whistle-blowers out of the woodwork then the government is almost certain to stomp on it with a totalitarian boot. They'll find some way of ensuring that it must be licensed or that its records must be open to government scrutiny under the terms of some new kind of licensing regime.

Hmmm... maybe I should float that as a prediction. Any buyers?

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