So, in theory betting on future events can be a useful practice for establishing an epistemic record, "putting your money where your mouth is", etc. However, I recently noticed an issue -- most forms of betting appear to be illegal in the state of California, including not just sports betting but also "casual bets." In fact, if such bets are conducted online or have more than $2500 at state, they are actually felonies!

(After this issue came up in a recent conversation elsewhere, someone asked a lawyer about the matter to confirm, and the lawyer's opinion was that this was indeed illegal but unlikely to be enforced.)

To me, this poses a major obstacle to conducting these sorts of bets and makes me much more reluctant to do so. Are there any good methods for avoiding such issues that people are aware of? (For instance, I've heard the idea posed before that you bet in the form of conditional donations to charity -- I don't think this actually gets around the relevant issues but would be interested in hearing more proposals like that if people have them.)

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The laws in the  US (generally local or state) are almost always written to criminalize transactions that involve "chance, consideration, and interest".

"Chance" basically means that the outcome is outside the control of the participants. In Texas, poker is defined as a game of skill, so the outcome is, by definition, not a matter of chance. Most other places don't take that stance.

"Consideration" means that the parties put up something of value. Another way around these laws is often taken by prediction markets (or casino nights) within a company. The participants might win something, but the initial stake is provided by the sponsor.

"Interest" means that the parties stand to gain something if the outcome is in their favor. If the winnings will go to charity, you aren't breaking any laws. This is the work-around exploited by Long Bets. 

It seems to me that one could make a solid case that prediction markets demonstrate skill, since there is consistency over time of who wins and who loses. A variety of PMs have demonstrated that there are super-predictors who have a consistent ability to do well.  The issue is that the laws are written and enforced locally, so there's no one to go to to get a blanket ruling that you won't be prosecuted. If you offer PM services throughout the US, then every local prosecutor who thinks the publicity will help her in the next election can take you to court, and you have to win all the cases in order to not lose your shirt.

If everyone involved donates a consistent amount to charity every year (eg 10% of income), the loser could donate their losses to charity, and the winner could count that against their own charitable giving for the year, ending up with more money even though the loser didn't directly pay the winner.

2Dagon6mo
Hard to test, as these laws are so spottily enforced anyway, but I'd suspect that if this mechanism were formalized and enforceable, courts would find the monetary value being wagered to be just as prohibited as actual money.

The problem with this law (and with MANY similar regulations and restrictions on personal activity) is that it is very selectively enforced.  

You can almost certainly do whatever you want among close friends in private - I know of many $10K or bigger prop bets made in California cardrooms, with no repercussions.  I suspect if a politician or famous person who a prosecutor didn't like did it, or if a set of wagers became too public to ignore, or if it were scaled up on a website, it'd be investigated and have consequences.

Taxes, likewise.  Unless you file as a professional gambler and keep very detailed records, any winning bet is taxable as income, and losing bets are not deductible at all.  This vig makes it infeasible to implement at scale, even if it were legal.

I think this applies to the suggested workaround of non-monetary stakes as well.  The government is VERY good at assigning legal quantities to anything, when they feel like it.  If you were being prosecuted, I guarantee they'd put a dollar value on your professional accounting services that you wagered.

The best answer is to leave the jurisdiction that's restricting your freedoms in this way, or to stay under the radar and hope you don't get caught.  

The main way I have gotten around these in practice has been to wager non-monetary items, things like "Whoever loses has to file the other's taxes" The method tends to work much better when you live in the same house (since housework is a very tradeable thing and is always in demand). This obviously has the weakness that it tends to work best for 50/50 wagers and is worse at the full continuum. However there are ways around this (\instead of betting on IF something will happen you can bet on WHEN, or you can bet on HOW MUCH ex "I bet 30 guests will arrive at the party tommrow, " person 2 : "I'll take the under on that")

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I feel like there ought to be some way to do betting-with-extra-steps-that's-technically-not-betting, but I don't know what the legal definition of betting is under CA law or whether the law is vague enough that any trickery could be punished regardless of whether it meets a strict definition.

https://xkcd.com/1494/

Your cool hack that gets around a loophole in the law is probably something that someone has noticed.

There are various tricks that rich people use to find loopholes in tax laws that allow them to pay less in tax money. That doesn't mean that all such loopholes get automatically filled.