1. You’re clear that your definition of gambling is not a legal one, but that distinction often gets lost in public discourse. Many people rely on a moral definition and assume the law is supposed to follow it. That’s not workable; legal decisions must follow legal definitions.
2. It’s true that both investing and gambling involve risk, but lumping index funds and Kalshi contracts into the same category isn’t helpful for financial literacy. (Shameless plug: our first podcast was on investing vs. gambling.)
3. We're not sure it’s accurate to say prediction-market executives avoid the word gambling. Kalshi’s advertising strategy and Shane Coplan’s “betting” framing on 60 Minutes are two obvious examples.
4. When you say prediction markets are gambling but some contracts have real social value—that nuance matters, and it’s exactly what tends to get lost. Proponents insist “this is not gambling,” opponents say “it’s nothing but gambling,” and both positions miss how the law actually draws the line. We’ve been critical of both extremes.
5. Your scoring framework echoes elements of Congress’s economic purpose test, but the weight you give to “commercial appeal” skews things, especially for sports. Commercial appeal is the operator’s issue, not the regulator’s. You can’t design law around giving people whatever they want; responsibility and protection are part of the equation.
6. We’re not opposed to people spending their money however they choose, but there are two guardrails: (i) liberty requires transparency—people need to know what they’re buying (e.g., crypto isn’t investing, roulette is gambling); and (ii) liberty has boundaries—your freedom stops where mine starts. For more than a century, the U.S. has concluded that blending futures markets with gambling invites disaster. Transparency alone can’t fix that. Congress has already drawn a hard line, and if we care about democracy, we should care about enforcing the laws. If people don’t like the line, the remedy is congressional action, not legal maneuvering.
Thank you for the response. I am definitely approaching this more from a commercial/public interest view rather than a legal view. (with the main exception of the mention markets which to my layman's eye are supported by neither).
1) I don't think the moral definition maps well to the legal definition in many cases, including here.
2) On this one I do strongly disagree, though I don't think my viewpoint is incompatible with what you're arguing. (and I did point out the activities have very different expected values).
The same financial literacy tools enable someone to evaluate the negative expectancy with no skill basis of a roulette wheel, or the negative sum but skill based prediction market trades, vs the (at least likely long-term) positive EV of index funds. I'm lumping them together based on how I would approach analysis of the product, and on that they share a great deal in common. The expected values vary wildly and if someone gains financial literacy they can approach each correctly.
Where I diverge from many more libertarian folks is the idea that we should "let people lose their money if they want." Humans are not naturally good at understanding probability and finance, and we do not teach them well. My bias is that we should add more frictions to these types of products in the same way we approach alcohol and cigarettes. (and teach more people probability)
3) This is fair - they have used the term "betting" though I have not seen them refer to themselves as "gambling companies"
4) Agree, though with a huge % of volume on sports, in effect they end up more on the entertainment/gambling vs social value side today.
5) We're coming at this from different angles, I agree I gave significant weight to commercial appeal. I don't view my scorecard as a legal framework. My background is in trading ETFs - there are some great products out there, and some terrible expected value products, they're both legal. There's a legal line and another line I draw as a reasonably informed consumer. I feel equivocal about sports as I described in the article, (giving them 1.5/5 for societal value and 1/5 for hedge value, I can see an argument they should be zeroes) and my highish rating is more compared to sportsbooks vs the question of should they exist at all. (and then there are some complex arguments of regulation there)
6) I agree we should care about enforcing the laws as written. I worry that due to a lack of financial literacy, people aren't able to tell the difference between +EV and -EV transactions even in legal products (you can make negative EV trades with index funds too by overtrading!)
I'll definitely check out the podcast episode and sincerely appreciate the thoughtful, specific criticism.
Thank you, Andrew, for your thoughtful response. It seems we share more common ground than not, though perhaps we are not fully aligned on what the optimal solutions are.
On cigarettes, the main friction comes from labeling: “Smoking kills,” “Smoking causes fatal lung cancer,” and so on. We’ve long argued that something similar is appropriate for crypto: “This is a speculative product.” That’s not an anti-crypto stance—it’s a call for transparency. In fact, it would help the stronger, more utilitarian blockchain projects compete on their merits. With clear labeling, crypto would be forced to stand on utility rather than speculative appeal (“tech crypto” vs. “money crypto”), which is the right competitive landscape.
Most people don’t realize this kind of labeling is not even new. Before the SEC existed, state securities regulators used similar classifications. Their implementation was flawed—stocks are not inherently speculative; they become speculative at certain price levels. A stock can be an investment at $5 and pure speculation at $10, with everything in between being what you might call “speculative investing.” You can’t label something whose status changes daily. Crypto, however, is always speculative. Proper labeling that discloses that financial reality is the friction that’s missing today. Placing crypto next to stocks in the same trading apps does the opposite: It encourages, especially younger users to view them as equivalents.
Your point about +EV and -EV is also well taken. As an economist (Alper), I’ve spent plenty of time with that literature—my dissertation advisor at UCLA literally co-authored The Analytics of Uncertainty and Information. Expected value sits at the core of the rational-choice framework.
Viewed narrowly, it can look inconsistent that we permit many -EV activities (most casino gambling) while prohibiting some that may be +EV for individuals (certain prediction contracts). One way out is to say “the law just uses a different lens,” but that’s not quite right. A better explanation is that the law performs the same EV analysis—only at the societal level rather than the individual one.
Start with casino gambling. The house wins and the gambler loses, but we generally hesitate to tell people how to spend their own money unless others are harmed. Individual freedom has societal benefits. Tax revenue, tourism, and employment add further upside. Of course, the social costs—addiction, family harm, financial distress—are significant. But when a voting majority in a state concludes that the benefits outweigh the costs, they can choose to legalize and regulate the activity with guardrails. The positive EV isn’t created by the vote; the vote simply authorizes a regulatory regime that reflects the majority’s judgment about the net effect.
Prediction markets—most, though not all—operate differently. Yes, a skilled trader can find edge and profit. But enabling that opportunity also creates negative externalities: fans no longer trust that the sports they watch are clean; coaches lose jobs after harassment tied to bettors; tennis players are abused mid-match because their performance isn’t meeting gamblers’ expectations. The individual’s “freedom” to bet becomes a constraint on others’ freedom to participate without undue pressure or risk. The societal EV becomes sharply negative. This is exactly why, over the past century, federal law has kept sports gambling distinct from legitimate futures trading and has acted aggressively when the two start to blur.
Bottom line:
• Casino gambling is -EV at the individual level, but many states judge that the societal benefits can outweigh the societal costs. When a voting majority reaches that conclusion, they are free to authorize a regulated framework with guardrails.
• Prediction-market gambling may be +EV for individuals, but the negative externalities push the societal EV well into the negative. The existing federal laws reflect that long-standing assessment. If people believe the calculus has changed, the appropriate remedy is congressional action—not legal workarounds.
Thank you again for the engagement—we appreciate the dialogue.
Thanks, Andrew — a few thoughts from our side:
1. You’re clear that your definition of gambling is not a legal one, but that distinction often gets lost in public discourse. Many people rely on a moral definition and assume the law is supposed to follow it. That’s not workable; legal decisions must follow legal definitions.
2. It’s true that both investing and gambling involve risk, but lumping index funds and Kalshi contracts into the same category isn’t helpful for financial literacy. (Shameless plug: our first podcast was on investing vs. gambling.)
3. We're not sure it’s accurate to say prediction-market executives avoid the word gambling. Kalshi’s advertising strategy and Shane Coplan’s “betting” framing on 60 Minutes are two obvious examples.
4. When you say prediction markets are gambling but some contracts have real social value—that nuance matters, and it’s exactly what tends to get lost. Proponents insist “this is not gambling,” opponents say “it’s nothing but gambling,” and both positions miss how the law actually draws the line. We’ve been critical of both extremes.
5. Your scoring framework echoes elements of Congress’s economic purpose test, but the weight you give to “commercial appeal” skews things, especially for sports. Commercial appeal is the operator’s issue, not the regulator’s. You can’t design law around giving people whatever they want; responsibility and protection are part of the equation.
6. We’re not opposed to people spending their money however they choose, but there are two guardrails: (i) liberty requires transparency—people need to know what they’re buying (e.g., crypto isn’t investing, roulette is gambling); and (ii) liberty has boundaries—your freedom stops where mine starts. For more than a century, the U.S. has concluded that blending futures markets with gambling invites disaster. Transparency alone can’t fix that. Congress has already drawn a hard line, and if we care about democracy, we should care about enforcing the laws. If people don’t like the line, the remedy is congressional action, not legal maneuvering.
Thank you for the response. I am definitely approaching this more from a commercial/public interest view rather than a legal view. (with the main exception of the mention markets which to my layman's eye are supported by neither).
1) I don't think the moral definition maps well to the legal definition in many cases, including here.
2) On this one I do strongly disagree, though I don't think my viewpoint is incompatible with what you're arguing. (and I did point out the activities have very different expected values).
The same financial literacy tools enable someone to evaluate the negative expectancy with no skill basis of a roulette wheel, or the negative sum but skill based prediction market trades, vs the (at least likely long-term) positive EV of index funds. I'm lumping them together based on how I would approach analysis of the product, and on that they share a great deal in common. The expected values vary wildly and if someone gains financial literacy they can approach each correctly.
Where I diverge from many more libertarian folks is the idea that we should "let people lose their money if they want." Humans are not naturally good at understanding probability and finance, and we do not teach them well. My bias is that we should add more frictions to these types of products in the same way we approach alcohol and cigarettes. (and teach more people probability)
3) This is fair - they have used the term "betting" though I have not seen them refer to themselves as "gambling companies"
4) Agree, though with a huge % of volume on sports, in effect they end up more on the entertainment/gambling vs social value side today.
5) We're coming at this from different angles, I agree I gave significant weight to commercial appeal. I don't view my scorecard as a legal framework. My background is in trading ETFs - there are some great products out there, and some terrible expected value products, they're both legal. There's a legal line and another line I draw as a reasonably informed consumer. I feel equivocal about sports as I described in the article, (giving them 1.5/5 for societal value and 1/5 for hedge value, I can see an argument they should be zeroes) and my highish rating is more compared to sportsbooks vs the question of should they exist at all. (and then there are some complex arguments of regulation there)
6) I agree we should care about enforcing the laws as written. I worry that due to a lack of financial literacy, people aren't able to tell the difference between +EV and -EV transactions even in legal products (you can make negative EV trades with index funds too by overtrading!)
I'll definitely check out the podcast episode and sincerely appreciate the thoughtful, specific criticism.
Thank you, Andrew, for your thoughtful response. It seems we share more common ground than not, though perhaps we are not fully aligned on what the optimal solutions are.
On cigarettes, the main friction comes from labeling: “Smoking kills,” “Smoking causes fatal lung cancer,” and so on. We’ve long argued that something similar is appropriate for crypto: “This is a speculative product.” That’s not an anti-crypto stance—it’s a call for transparency. In fact, it would help the stronger, more utilitarian blockchain projects compete on their merits. With clear labeling, crypto would be forced to stand on utility rather than speculative appeal (“tech crypto” vs. “money crypto”), which is the right competitive landscape.
Most people don’t realize this kind of labeling is not even new. Before the SEC existed, state securities regulators used similar classifications. Their implementation was flawed—stocks are not inherently speculative; they become speculative at certain price levels. A stock can be an investment at $5 and pure speculation at $10, with everything in between being what you might call “speculative investing.” You can’t label something whose status changes daily. Crypto, however, is always speculative. Proper labeling that discloses that financial reality is the friction that’s missing today. Placing crypto next to stocks in the same trading apps does the opposite: It encourages, especially younger users to view them as equivalents.
Your point about +EV and -EV is also well taken. As an economist (Alper), I’ve spent plenty of time with that literature—my dissertation advisor at UCLA literally co-authored The Analytics of Uncertainty and Information. Expected value sits at the core of the rational-choice framework.
Viewed narrowly, it can look inconsistent that we permit many -EV activities (most casino gambling) while prohibiting some that may be +EV for individuals (certain prediction contracts). One way out is to say “the law just uses a different lens,” but that’s not quite right. A better explanation is that the law performs the same EV analysis—only at the societal level rather than the individual one.
Start with casino gambling. The house wins and the gambler loses, but we generally hesitate to tell people how to spend their own money unless others are harmed. Individual freedom has societal benefits. Tax revenue, tourism, and employment add further upside. Of course, the social costs—addiction, family harm, financial distress—are significant. But when a voting majority in a state concludes that the benefits outweigh the costs, they can choose to legalize and regulate the activity with guardrails. The positive EV isn’t created by the vote; the vote simply authorizes a regulatory regime that reflects the majority’s judgment about the net effect.
Prediction markets—most, though not all—operate differently. Yes, a skilled trader can find edge and profit. But enabling that opportunity also creates negative externalities: fans no longer trust that the sports they watch are clean; coaches lose jobs after harassment tied to bettors; tennis players are abused mid-match because their performance isn’t meeting gamblers’ expectations. The individual’s “freedom” to bet becomes a constraint on others’ freedom to participate without undue pressure or risk. The societal EV becomes sharply negative. This is exactly why, over the past century, federal law has kept sports gambling distinct from legitimate futures trading and has acted aggressively when the two start to blur.
Bottom line:
• Casino gambling is -EV at the individual level, but many states judge that the societal benefits can outweigh the societal costs. When a voting majority reaches that conclusion, they are free to authorize a regulated framework with guardrails.
• Prediction-market gambling may be +EV for individuals, but the negative externalities push the societal EV well into the negative. The existing federal laws reflect that long-standing assessment. If people believe the calculus has changed, the appropriate remedy is congressional action—not legal workarounds.
Thank you again for the engagement—we appreciate the dialogue.