Why don't more businesses use prediction markets? - Marginal REVOLUTION

The more you think people are trying to manipulate a speculative market price, the MORE accurate you should expect that price to be.

“Prediction markets reflect a fundamental principle underlying the value of market-based pricing: Because information is often widely dispersed among economic actors, it is highly desirable to find a mechanism to collect and aggregate that information. Free markets usually manage this process well because almost anyone can participate, and the pote

... See more

In a prediction market, it is relatively more difficult: maybe you are trading with someone who has natural exposure to a Russian invasion and is just looking for a hedge, but more likely your counterparty is, like, a guy who speaks Russian and is in dozens of Telegram groups waiting for just the right moment to trade against your resting order.

But more recently, prediction markets have developed an odd sort of problem. There seems to be a feedback mechanism now whereby the betting-market odds reify themselves.

What do we mean by that? In the case of Brexit, it goes like this: Different surveys give different results, and we all know not to trust the polls, which have notoriously failed in... See more

A preference for unbiased predictions is justified if all errors of prediction are treated alike, regardless of their direction. But there are situations in which one type of error is much worse than another. When a venture capitalist looks for “the next big thing,” the risk of missing the next Google or Facebook is far more important than the risk

... See more