In the late 1980s, three economics professors at the University of Iowa launched what would become the first modern prediction market. The Iowa Political Stock Market was not designed as a game of chance, but as a serious academic experiment, one that allowed participants to buy and sell contracts tied to the outcome of the 1988 presidential election between George H.W. Bush and Michael Dukakis. The results were remarkable. The market predicted President Bush’s exact share of the popular vote and came within two-tenths of a percentage point for Dukakis, far outperforming traditional polling.
Nearly four decades later, prediction markets have repeatedly demonstrated their value as powerful tools for aggregating information and forecasting future events. Yet the Iowa Legislature is considering policies that would misclassify these markets as gambling, subjecting them to regulations that would effectively drive them out of the state. This is a fundamental misunderstanding of what prediction markets are and how they function.
Prediction markets are not casinos. They do not rely on odds set by a house, nor do participants wager against a centralized operator. Instead, they operate as federally regulated, fee-based exchanges where individuals trade contracts based on their expectations of future outcomes, much like investors trading stocks or commodities. Prices are determined by supply and demand, reflecting the collective judgment of market participants. In this way, prediction markets serve a vital informational function, similar to how futures markets help guide decision-making in agriculture and other industries.
These markets are also transparent and inherently fair. Participants can observe trading activity in real time, and the platform itself has no stake in the outcome of trades. This structure stands in stark contrast to traditional gambling models and underscores why prediction markets have been treated as financial instruments under federal law.
Under the Commodity Exchange Act, regulatory authority over these markets rests with the Commodity Futures Trading Commission (CFTC). This federal framework provides a uniform set of rules designed to ensure market integrity while allowing innovation to flourish. Attempts at the state level to impose additional, and potentially conflicting, regulations risk undermining that framework. Such actions invite legal challenges, with precedent suggesting that federal authority in this area will ultimately prevail.
From a fiscal perspective, the consequences of such a policy would likely be counterproductive. Rather than generating new revenue, the state could find itself engaged in costly litigation, while simultaneously discouraging legitimate businesses from operating within Iowa. Moreover, creating uncertainty in one segment of federally regulated markets could have broader implications, potentially eroding confidence in other areas, such as commodities trading, where regulatory clarity has long been established.
At a time when Iowans are facing pressing economic concerns, including the need for meaningful property tax reform, legislative attention should be directed toward policies that strengthen the state’s financial foundation. Pursuing a course that introduces legal uncertainty and discourages innovation does not advance that objective.
Iowa has a distinct advantage in this space. The very concept of modern prediction markets was born here. That legacy presents an opportunity, not a liability. Policymakers can choose to work within the existing federal framework, supporting the responsible growth of an industry with significant potential, or they can impose unnecessary constraints that push innovation elsewhere.
Iowa has long been a place where new ideas take root and grow into innovations that benefit the broader world. Prediction markets are one such innovation. The question before the Legislature is whether the state will continue that tradition or abandon it in favor of policies that hinder progress and create avoidable risk.
Russell Saffell of Ankeny is a scholar of public administration, public policy and economics. He is a policy analyst, adjunct professor, and nonprofit executive. He is a candidate for state representative for Iowa House District 43.
This article originally appeared on Des Moines Register: Prediction markets can aid Iowa. Don’t push them out. | Opinion
Reporting by Russell Saffell, Guest columnist / Des Moines Register
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