Shortly we’ll know whether New Zealanders are more honest or more perceptive when they have money riding on their predictions, than when answering pollsters.

IPredict formally launched its market yesterday. It is operated by a subsidiary of Victoria University of Wellington. It allows kiwis to do what US, Australian and UK citizens have been  able to do for a long time – that is lay internet bets on the outcome of events like elections.

IPredict has been ensnared in New Zealand’s nanny law thicket for months as the Securities Commission worked on the  exemptions that  allow IPredict to operate.

The problem is law that favours unproductive gambling and bans productive gambling (informal investment offerings). I posted on this issue in July, and last week. Though the Commission process seemed endless, Commission staff deserve credit for facilitating the market. If they had not been willing to help, IPredict would still be stymied by gambling law.

Prediction or wagering markets can predict uncertain future events more reliably than opinion polling. That is not mysterious. Whether out of  politeness, a desire to please, or fear of retribution for unpopular views, many people polled say what they think they ought to say, instead of what they really think. The secrecy of the ballot box then allows them to vote as they really want, rather than as they’re expected to vote.

But in prediction markets people back their judgment with money.  Accordingly they put effort into working out the difference between what they, and other people, and the media, say and what they really think.  And their collective judgment tends to be an astoninshingly accurate indicator of what will actually happen, when an outcome depends on what people actually think. 

These kinds of markets are getting a great deal of academic attention. But the interest is not only academic, because its fun to pit your judgment and money against others’ judgment and money.

Whale Oil blogged on two websites targetting the New Zealand market. His second post noted the advantages of one established by some keen Auckland students, over a sophisticated product appearing to come from Germany.

Now New Zealanders can legally bet with an establishment New Zealand institution on the outcome of this year’s election, among other uncertainties.

Disclosure of interest – I’ve been among the lawyers advising  IPredict during its long wade in the regulatory  swamp. I’ve also traded for months on IPredict during its beta testing using "funny money". I do not know how many of us were trading during that period, but I was well ranked in the league table. I made special gains out of a contract on whether petrol would be over $2-00 per litre on 31 July.