Why is it now legal to gamble on the 2016 elections?

The website PredictIt lets visitors gamble on the outcomes on elections and other world events, all in the name of science.

Mario Anzuoni/Reuters/File
Republican US presidential candidates (left to right), former US Senator Rick Santorum, former New York Governor George Pataki, US Senator Rand Paul, former Arkansas Governor Mike Huckabee, US Senator Marco Rubio, US Senator Ted Cruz, Dr. Ben Carson, businessman Donald Trump, former Florida Governor Jeb Bush, Wisconsin Governor Scott Walker, former CEO Carly Fiorina, Ohio Governor John Kasich and New Jersey Governor Chris Christie pose before the start of the second official Republican presidential candidates debate of the 2016 US presidential campaign at the Ronald Reagan Presidential Library in Simi Valley, Calif., in September.

Who will be the eventual 2016 Republican presidential nominee? Will Donald Trump run as a third-party candidate? Will Joe Biden enter the race?

Predict correctly, and the year-old political gambling site PredictIt promises to turn your political acumen into cash.

Since its launch in October 2014, the online marketplace, in which 37,000 traders have wagered $9.4 million over the past year, has welcomed political junkies to forecast events like whether Kevin McCarthy will become next House Speaker, whether Louisiana Gov. Bobby Jindal will drop out of the race, and whether Vermont Sen. Bernie Sanders will be the 2016 Democratic presidential nominee.

The goal: to test whether markets can be more accurate than polls or pundits (with a lucrative cash incentive, along the way).

“There are 25 or more years of data that show prediction markets do a better job predicting outcomes than polls,” Emile Servan-Schreiber, founder and CEO of Lumenogic and an expert in prediction markets, told Politico last October.

But similar betting sites like it have been shuttered before, and PredictIt's legality remains murky.

In fact, in 2012, the federal Commodity Futures Trading Commission (CFTC), which regulates futures and option markets, prohibited political predictions markets on the grounds that they are "contrary to the public interest."

That same year, it also sued and shuttered Intrade, an Irish prediction marketplace similar to PredictIt.

So why is PredictIt now allowed?

Because the government has said it won't prosecute because PredictIt, an operation of the Victoria University of Wellington, New Zealand, and the political technology firm Aristotle, exists for academic purposes.

While political bettors in the US are using PredictIt to wager real money on their predictions, researchers in New Zealand are using those wagers to determine whether political predictions markets can predict outcomes of certain events more accurately than traditional means like public opinion polling. The university is using data from PredictIt in its courses on statistical analysis, market theory, and trader psychology.

There are some protections in place: Participants must be 18 or older and wagers are capped at $850, a limit designed to discourage market manipulation.

Because certain states have stricter laws on gaming and gambling, the site is prohibiting registrants from Washington and Nevada.

But plenty of ethical questions remain around online prediction sites like PredictIt.

The site cannot, for example, protect against insider trading. While PredictIt prohibits its own employees from betting, "there's really nothing we can do" if other insiders – such as campaign workers, congressional staffers, or pollsters – leverage their inside knowledge, an executive from Aristotle told Time.

And when insiders bet on political outcomes, the political process could become further corrupted, a point the CFTC itself has pointed out.

“[Prediction markets can] have an adverse effect on the integrity of elections, for example by creating monetary incentives to vote for particular candidates even when such a vote may be contrary to the voter's political views,” a 2012 CFTC order reads.

Still, supporters maintain that its benefits outweigh its potential risks.

“This is valuable information that the public should be free to access," Eli Dourado, a tech policy researcher at the Mercatus Center at George Mason University, told Fox News. "During a political campaign, you may not know how to weight the different polls that come out, or how to interpret the bluster that emerges from each side, but the market price of each candidate on one of these sites represents a summary of what people who are willing to put their own money on the line believe.”

Or, as Justin Wolfers, a professor of economics and public policy at the University of Michigan told the Washington Post, "Polls say who you're going to vote for. Markets say who you think is going to win."

Today, many polls say GOP candidates Donald Trump, Ben Carson, and Carly Fiorina have the best chance of winning the Republican nomination. PredictIt says that Marco Rubio and Jeb Bush have the best shots.

And in 2008, before it was shuttered, Intrade correctly predicted President Barack Obama’s victory and the electoral outcome in 49 of 50 states.

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