1. I endorsed the view expressed by Wolfers and Leigh, that “the presence of highly informed insiders will tend to drive out the partly-informed public.” I anticipated that this influence would hamper attempts at creating real-money markets, but didn’t think separately about the relationship to play-money exchanges at the time.

Now, having thought about that angle, I don’t think that this force would be such a problem for play-money markets. I can’t see an “insider” risking much for the chance to clean up big in a play-money market.

2. “These fictional worlds do not produce widely dispersed bits of information that can be usefully aggregated by a market.” I think I was wrong on this point. Clearly not any assemblage of words could stand in as the 7th book in that series, but rather Rowling would likely feel constrained in many ways because of what she had written in the past. (The book would be about a character named Harry, he’d be a 17-year old wizard, etc.) While I remain pretty sure that we don’t have a good sense of, say, the relevant probability distributions necessary to make good estimates, that point doesn’t mean that a market can’t aggregate widely dispersed bits of information.

3. “But if you are an investor trying to maximize long term returns and have no inside information, this is a case where Kelly’s criterion for betting comes into play.” Still true. Well, maybe I’d say “have no edge” rather than “have no inside information.” Having backed up a bit in point 2, I suppose I should allow that a skilled reader could have an edge not tied to inside information. But if you are not a skilled reader of fantasy, and don’t have some other edge, then you are better off in the long run in such situations if you keep your wallet in your pocket.

By the way, Chris, I was briefly “invested” in a Harry Potter market at the play-money Inkling market. I only dropped out, a few days before the book release, because i didn’t want to inadvertently receive a spoiler in the form of a “market closed” email.

Clearly, in a play money exchange, I am not acting as “an investor trying to maximize long term returns.” Instead, I’m just trying to have fun (and learn a few things about prediction markets).

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Midas Oracle is the central force of the field of prediction markets.
http://www.midasoracle.org/2007/07/25/midas-oracle-is-the-central-force-of-the-field-of-prediction-markets/

British bookmaker William Hill pays both sides on the Harry Potter bet.
http://www.midasoracle.org/2007/08/08/british-bookmaker-william-hill-pays-both-sides-on-the-harry-potter-bet/

The NewsFutures expiry judgment statements should not be elliptic.
http://www.midasoracle.org/2007/08/09/the-newsfutures-expiry-judgment-statements-should-not-be-elliptic/