Some good comments have been made in defense of prediction markets, but Barry’s objection is really a minor, nearly semantic distinction, and one that is colored by his basically correct yet irrelevant opinion that [prediction markets] are still mainly domain of blogger “weenies”, gamblers and academics as opposed to serious finance guys.
It is true that most of what prediction markets do is aggregate current information, “discounting” more than “predicting” as Barry would say. Even when traders extrapolate trends and make synthetic judgments about the future, they are relying on present/past information.
Ritholtz’s beef is more about how some authors (including perhaps a strawman or two) write about [prediction markets], as opposed to the subject itself. He would agree that sufficiently liquid [prediction markets] perform better than experts on questions where there is actually dispersed information to be aggregated.
Often, not to say that this happened here, proponents of maligned or unpopular positions tend towards hyperbole.
Barry Ritholtz’s bone of contention: Misunderstanding Prediction Market Failures
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