CHARBONNEAU – Coming soon: British Columbian Prediction Market (BCPM)

 CANADA IS VIRGIN TERRITORY for prediction markets. They have gone wild in America and Canadians want some of the action.

B.C. should seize the moment and establish its own prediction market along the lines of the crown corporation British Columbia Lottery Corporation (BCLC).

Canada has taken steps to make sure that prediction markets are not gambling sites, although predicting the future has obvious risks.

Gamblers are motivated by the thrill of a possible win. There is a social aspect of poker with friends. Tragically, some gamblers chase losses that can lead to personal and financial ruin.

Rational investors in prediction markets have different motives. They believe they have superior information or analysis about an outcome and want to profit from that edge.

According to a paper published by the Association of Psychological Science, investors in prediction markets are often driven by the challenge of being “well-calibrated.” They like to test their reasoning against reality. It’s the kind of  “mastery-and-feedback loop” that draws people to chess.

Canada has to avoid the model in America where there is a strong gambling element.  American prediction market users are sucked into the same psychology as gamblers, especially in short term markets like sports, where prediction contracts are essentially gambling with a forecasting veneer.

 There are already a few  prediction markets in Canada such as Wealthsimple. They are strictly limited to economic indicators (inflation rates, GDP, central bank interest rate decisions); financial markets (stock market moves); and climate and weather trends.

To eliminate rapid “day trading” style bets, Canadian contracts must be 30 days or longer.

The financial models of lottery corporations and prediction markets are quite different.

BCLC takes a cut of the house, ensuring that over the long run the odds are always in their favour.  The profits of BCPM wouldn’t depend on the outcome of a prediction. It wouldn’t matter if a prediction was true or false. Instead, the profits come from a fee of a few cents for each transaction.

The fee per transaction may be small but the profits are big. The giant in the American market, Kalshi, hit an estimated $3.5 billion in annualized revenue massively driven by the introduction of sports event contracts.

Those profits from prediction markets should go to the people of B.C.

In addition to bringing home the profits, prediction markets are good forecasters of events.

When money is on the line, investors do their homework before buying a contract. And policy makers pay attention to predictions made by crowds of self-interested investors. Unlike respondents to opinion polls, investors have some skin in the game.

Kalshi successfully predicted Trump’s 2024 election win and Zohran Mamdani’s win in the NYC Democratic mayoral primary, even while traditional polling had him trailing Andrew Cuomo.

The power of prediction markets could have implications for British Columbia.

In B.C., the outcome of predictions from BCPM could help governments prepare relief programs such as when farmers face uncertainty over drought, frost, water availability and pest outbreaks.

British Columbians should reap the rewards of prediction markets financially as well as being aids in policy making.

David Charbonneau is a retired TRU electronics instructor who hosts a blog at http://closetproductions.ca/EyeView/eyeviewcover.htm