Do Commercial Prediction Markets Need Sports to Work?

There is a common view out there that prediction markets, like TradeSports, require sports betting to work. If true, that would hurt many people experimenting in this area, from weather on outward. But Stanford’s Eric Zitzewitz begs to differ:

Just to challenge a little the conventional wisdom that commercial prediction market exchanges need sports to make money: in my paper on Tradesports/Intrade’s binary Dow options, I note that only 54% of Tradesport’s volume comes from sports. 35% is financial contracts, 7% politics/current events, and 4% is entertainment.

This suggests that a real-money exchange like Intrade could probably survive without sports (obviously, it would prefer not to have to). Take away the financial contracts too though, and things don’t look so good.

(Of course, a caveat to this market share-based analysis is that ignores possible economies of scope. For instance, it may be that running sports markets attracts the “dumb money” that you need for the financial and politics prediction markets to work.)

[via Midas Oracle]