By now, all of us are familiar with `prediction markets', which are organised systems for placing bets on discrete outcomes - ranging from India's performance in world cup cricket to the date of the next general elections. Prediction markets have been proven to be rather effective at obtaining useful information about the future. As with the process of speculative price discovery in financial markets, the basic point seems to be that these markets give incentives to people who command remarkable knowledge to step forward and contribute their knowledge into a publicly visible form, to generate a public good of the price. As an example, I use this page to have a sense of when Apple is going to launch Macbook Pros with the Santa Rosa chipset.
New Economist has a blog post where an illustrious bunch of economists in the US appeal for a more liberal public policy framework which allows these markets to flourish. Their document is very well written and worth reading, as is Steve Levitt's blog post about why he did not sign it. Readers of this blog might recognise the name Michael Gorham. Also see When gambling is good by Robert Hahn and Paul Tetlock.
This got me thinking: Why don't we have prediction markets in India? A natural answer that might come back is: Because they'd be considered gambling and shut down.
I'm not a lawyer, but in my understanding, the legal framework [link] does not prohibit gambling: it only blocks the utilisation of the contract enforcement services of the State in collecting on gambling debt. So if a prediction market is properly collateralised, and if one never needs to resort to the State when an individual defaults, then the legislation should not be an impediment. (Or am I missing something essential? There is a scary provision in IPC where they promise to go after people who run lotteries.)
Another strategy, of course, is to setup a market outside the country and have Indian citizens submitting transactions into it using credit cards. One of the existing prediction market websites could easily come up with a bunch of India-related products, and sell them by advertising through the Internet.