Betting markets and benign manipulation

Zachary Basu writes about the 'explosion of legalized gambling' in the US, which 'has set the stage for a provocative new frontier in the world of risk-taking — betting markets for everyday events, ranging from Taylor Swift streams to hurricanes hitting major U.S. cities.'

Punters...

...can bet on hundreds of real-world events — whether the Fed will cut rates, the high temperature today in Miami, Oscar nominations, the outcome of Supreme Court cases — on Kalshi, the only federally regulated exchange dedicated to event markets.... Some ethics experts have raised concerns about the integrity of betting on natural disasters and other markets tied to human suffering, as well as those that could be subject to manipulation. America the slot machine, Zachary Basu, 10 April

If there were a market that promised huge rewards for successfully predicting, say, a halving of the number of people killed by natural disasters in the US, then you can see how it would be in punters' (otherwise known as 'investors'') interests to do whatever they can to improve US citizens' resilience to such disasters. And that explains how I came up with the idea of Social Policy Bonds: the aim is to reward not so much the successful prediction of future events, but successful efforts to influence future events to the benefit of society. Hence, in this example, Disaster Prevention Bonds.

The Social Policy Bond principle is a beneficial form of the manipulation to which Mr Basu refers, which can manifest itself in the sports world as match fixing. With governments (unsurprisingly) and philanthropists (disappointingly) taking only tiny steps in the direction of rewarding successful achievement of beneficial outcomes, perhaps another approach would be to set up a market with Kalshi for a relatively unambitious goal. Those who stand to lose money from, say, high crime rates in a particular city, such as insurance companies, could bet that crime in that city will not halve in the next five years. Punters on the other side of that gamble, and would be motivated to do all they can to make sure that such a halving does occur. Everybody would gain from this benign form of manipulation. Such is the Social Policy Bonds differ only in that those setting up the bet would aim to reduce all forms of losses, not only those that can be valued monetarily.