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COMMENT 

secretary 

From: Michael Strong [michael@flowidealism.org] 

Sent: Wednesday, June 04, 2008 3:36PM 

To: secretary 

Subject: Public Input on Possible Regulation of "Event Contracts" ~-

Dear Commissioners and Secretary, 

From my perspective, the most urgent need is to create a clear presumption oflegality, with minimal or 

no regulation, for low stakes event markets (With limits of, say, $5,000 or less) and regulation that 

minimizes barriers to entry of new markets at higher levels. 

I see event markets as potentially one of the most powerful tools for improving the human condition to 

have been invented in the pasttwenty years- arguably more powerful than advances in IT, biotech, 

medicine, and other fields. The reason for this perspective is a recognition of the potential benefits to be 

derived from more deeply informed policy perspectives. There are reasons to believe that event markets 

could improve our knowledge of proposed and existing policy outcomes more effectively than has been 

the case with the entire field of academic social science for the past century. 

Effective event markets could have predicted, and prevented, the policy outcomes associated with issues 

as diverse as the subprime mortgage crises, the global catastrophe of communism, or numerous 

misguided public school reforms. In each case, there were numerous individuals in a position to foresee 

accurately certain outcomes, but who were not in a position of power and recognition to have their 

opinions influence policy. In a monetized prediction market, such individuals would be sought out by 

investors in such markets and thus key information would have been transmitted to a broader public far 

earlier than was the case. In some cases numerous intermediary events may need to be subject to event 

markets; here again, we need to allow event market entrepreneurs the freedom to determine in an 

ongoing discovery process which intermediary events need to be identified in an event market in order 

to elicit the most urgently needed information at the highest levels. But if the system is open enough, 

such entrepreneurs will create such markets. 

But in order for such outcomes to become a reality, we need to open up the field to a vast, 

entrepreneurial prediction markets sector with very low barriers to entry. There is already software 

available that would allow almost anyone to set up an event market on-line quickly and easily. In order 

to discover the most effective species of event markets, we need to allow tens of thousands of 

entrepreneurs to experiment with various types of markets. Many.ofthose will serve no social purpose. 

But a few will, and the ones that do are most effective at discovering new information that is valuable 

will flourish. 

My understanding is that the possibility of prosecution under anti-gambling laws has prevented the 

spontaneous creation of a monetized events market industry in the U.S. A formal statement by the 

CFTC that events markets below some dollar threshold would be considered legal would allow the 

creation of a new dynamic research sector for the U.S. economy that might, at some point, benefit the 

U.S. economy and society as much as, say, universities do today. 

In order to differentiate these markets from gambling, the presumption of legality could be limited to 

those markets in which the events to be predicted have an impact beyond the fact of the outcome alone. 

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Thus, for instance, an event market in real estate sales prices creates information that is useful to the 

entire real estate industry; an event market in school test scores creates advance information on the 

outcomes of various innovations in educational policy; an event market in international economic 

freedom rankings provides advance information on the prospective economic growth rates of various 

nations. By contrast, an "event market" in the outcome of a horse race or boxing match does not have an 

obvious impact beyond the realm of horse racing or boxing, respectively. There may be a period in 

which these boundaries are refined; from my perspective the most important goal would be to create a 

clear presumption oflegality for those unambiguously valuable event markets. 

· I've written a number of speculative pieces on prospective event market applications; see 

"Prediction Markets and World Peace," 

http://www.flowidealism.org/Downloads/Prediction-Mkts%20&%20Peace.pdf 

"Put Your Money Where Your Theory Is," 

http://www.tcsdaily.com/article.aspx?id=030106E 

"How to Avoid Wasting $60 Billion in K-12 Philanthropy," 

http:/ /www.tcsdaily.com/article.aspx?id=030 1 06E 

My point has nothing to do with these particular examples; it is that if we create an event markets 

industry with minimal barriers to entry and clear legality, thousands of people will create innovative 

applications of monetized event markets that none ofus can imagine. Some small fraction of those will 

be far more imaginative and socially valuable than the applications devoted to world peace, social 

science research, and educational philanthropy that I've sketched out. 

On the other hand, if event markets are regulated such that only entities with the resources of a Goldman 

Sachs or CBOT can participate due to the cost of meeting regulatory requirements, then the vast 

majority of valuable event market innovations will never see the light of day. 

· I would be happy to elaborate on these issues in greater depth. 

Best regards, 

Michael Strong 

CEO, FLOW 

1510 Falcon Ledge Drive 

Austin, TX 78746 

Michael Strong 

CEO and ChiefVisionary Officer 

FLOW, Inc. 

www.flowidealism.org 

Liberating the Entrepreneurial Spirit for Good 

Links to my articles: 

http://www.flowproject.org/michael.html 

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When once you have tasted flight, you will forever walk the earth with your eyes turned skyward, for 

there you have been, and there you will always long to return.? 

Leonardo Da Vinci 

6/10/2008