House of Cards The second and final day of The Growth of Gambling and Prediction Markets: Economic and Financial Implications began with a very interesting session led by Ricardo Siu of of the University of Macau about whether or not gaming markets are a productive economic sector in the purely economic sense of that word: namely, are they capable of indefinite and sustainable growth?
The gaming sector is notoriously difficult to analyze due to the fact that casino gaming is typically bundled with a suite of related hospitality services and prices, and costs of the games themselves are uncertain: under a basic profitability formula, a player who gambles $100 for an hour and loses would be treated the same as a player who gambles $100 for 10 hours and loses, although the economic effect on the house is very different.
In short, gambling is not a static product to be sold, but rather an elastic service whose profit margin – the house edge – can only be evaluated in a long term context. Ultimately, the productivity of casino gaming is inseparable from the development that surrounds it, although the casino itself benefits from the technological advances of the world outside.
The gaming sector, which most people consider unproductive or even undesirable, is generally attacked in the press as a drag on local economies, and another paper covered the impact on housing prices of casino development in America since the 1990 census. Somewhat surprisingly, at least to this author, when compared with non-casino jurisdictions casino development has actually raised area housing prices.
Plenary session - when markets attack
The day concluded with three papers covering prediction markets, the first by Robin Hanson, the world's leading proponent of prediction markets and former head of DARPA's notorious "terror casino".
Robin Hanson - futarchist, cryogenic enthusiast, and all around Kool Aid-chugger - is the son of Baptist preacher, and he brings to the cause an eerie religiosity. A former physics student, Hanson admits that he got a PhD in economics so people would take his ideas seriously: truly a cart-before-the-horse moment. One of the original attacks on the "terror casino" was that the market was too thin not to be manipulated, and could steer policy in the wrong direction.
So what would a true believer do? Of course, Hanson's paper claimed that market manipulation actually makes markets more accurate, not less, by increasing the so-called "noise" of the market. Of course, like virtually all the presentations at the conference, this was concocted as nothing more than a laboratory experiment. Real statistics from futures exchange Intrade, for example - a conference sponsor, no less - were few and far between.