John Stossel
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Sunday night is Oscar night! Think you know who's going to win? Want to make a bet?

The Hollywood Stock Exchange allows people to bet on which movies, actors, directors, etc. will take home Academy Awards. You can also bet on how much money a movie might make. It's called a prediction market ... except unlike other prediction markets, bettors can't use real money.

What fun is that? It's not only less fun, it's also makes the prediction market less accurate. People are more careful when they have real money on the line, and the chance of losing money weeds out the frivolous guessers. Prediction markets are valuable for predicting all kinds of things because the prospect of making money attracts people with knowledge, judgment and a good sense of the future. More information is better than less. The people most confident in their information bet the most. That's why speculation is a sound market institution.

The promoters of the Hollywood Stock Exchange would have preferred the use of real money but -- surprise! -- government forbids it. The Frank-Dodd financial regulation law killed the real market at the behest of some in the movie industry.

Rich Jacobs, president of the Hollywood Stock Exchange, says that some studios wanted it killed because they didn't want public discussion of their plans.

"I think they were just concerned about bringing financial market transparency to an industry that hasn't had any transparency about finances," he said.

Why would people want a prediction market for movies?

"Thousands of users out there follow movies very closely," Jacobs said. "They have an opinion on how well those films will do, and they'd like to put some of their money (to) work."

And through the betting, knowledge would be revealed. Films more likely to succeed would probably get funded.

Not every studio opposed the prediction market. Lionsgate defended it. Good for them.

"It would give an opportunity for those trying to produce (small) films and get distribution ... by showing that the market thinks those films can make $10 or $20 million," Jacobs said.

The betting would start at the very beginning of the process.

"First, it's a script, an idea. Then, an actor or director signs on, and the value goes up. And by the time the trailer comes out, there's a very good sense of the valuation of the property."

But politicians called that "speculation" and "gambling." Can't have that!

"The Commodity Futures Trading Commission did a three-year review and concluded that there was legitimate economic purpose behind this market," Jacobs added.

But last year, then-Sen. Chris Dodd and Rep. Barney Frank said no.

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John Stossel

John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "No They Can't: Why Government Fails, but Individuals Succeed." To find out more about John Stossel, visit his site at >johnstossel.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com. ©Creators Syndicate