I think it’s interesting that in the limit, prediction markets don’t have prices that converge to probabilities—they converge to risk-adjusted prices.
I think the strongest case for prediction markets is that they’re unbiased and hard to manipulate in the limit. See this cached old blog post. Your post doesn’t take that into account.
I’m arguing that the limit is hard to reach and when it isn’t being reached, prediction markets are usually worse than alternatives. I’d be excited about a prediction market like Scott is describing in his post, but we are quite far away from implementing anything like that.
I also find it ironic that Scott’s example discusses how hard election prediction markets are to corrupt, which is precisely what happened in the Intrade example above.
Two points about prediction markets:
I think it’s interesting that in the limit, prediction markets don’t have prices that converge to probabilities—they converge to risk-adjusted prices.
I think the strongest case for prediction markets is that they’re unbiased and hard to manipulate in the limit. See this cached old blog post. Your post doesn’t take that into account.
I’m arguing that the limit is hard to reach and when it isn’t being reached, prediction markets are usually worse than alternatives. I’d be excited about a prediction market like Scott is describing in his post, but we are quite far away from implementing anything like that.
I also find it ironic that Scott’s example discusses how hard election prediction markets are to corrupt, which is precisely what happened in the Intrade example above.