Niall’s point #5 is of course valid. Just because people can access these markets doesn’t mean they will trade them. But to make the point complete, he should name some egregious PM failures in local UK politics. In any case, to get a fair test, people do need to be able to access the markets.

That depends – what prices are you talking about. When Obama traded at a probability of 99%?

2. “In any case, there were no postings on the 7th of January about how wrong the prediction markets (were)..”

Indeed, because nobody had nay idea what was going to happen?

3 “Additionally, there is a contingent of commentators and bloggers with an anti-market bias who delight in seeing any market based tool be wrong. They will be the first to loudly smear PM errors but no where to be found when the market turns out to be right.”

Perhaps; but there also those of us who love markets, but who despair at the prediction market hype. For example, the bombastic claims that every time an event with a probability greater than 50% comes good …the market has somehow predicted it……..but when an event with a probability of 99% goes badly wrong …silence, followed by defensiveness.

4. “PMs are not polls ..”

Indeed, so why do some prediction market devotees waste time comparing them. And why is it that said prediction market devotees then turn a blind eye to a paper by Robert S. Erikson and Christopher Wlezien entitled “Are Political Markets Really Superior to Polls as Election Predictors? The authors argue that as prediction market prices reflect forecasts of what will happen on Election Day and trial-heat polls only register preferences on the day of the poll, it is inappropriate to naively compare them on any given day in advance of an election. Transforming raw poll vote divisions into projections of the Election Day outcome and comparing these projections to vote-share prices they found that daily poll projections are infact superior to IEM prices. Indeed, in three of the five presidential elections with IEM vote share markets, poll projections were more accurate than betting market prices. In four of the five elections (with one tie), the week’s average poll projection dominated the daily market price; “We have learned, however, that prices in the IEM vote share market are no better, and in fact a bit worse, at predicting the vote than are projections based on the day’s most recent polls”.

Where the market holds to a view of the election at odds with the poll projections, it is somewhat more likely to be wrong than right”. The authors conclude that by their tests the IEM prediction markets are not better than trial-heat polls for predicting elections. In fact, they say, by a reasonable as opposed to naïve reading of the polls, the polls dominate the markets as an election forecaster; “The Iowa election market’s performance has not been so special after all. For now, our results suggest the need for much more caution and less naïve cheerleading about election markets on the part of prediction market advocates”.

5 “Regulations have hurt the accuracy and liquidity of PMs – The inconvenience of opening a trading account at Intrade has excluded many Americans from participating.”

The UK example, would suggest that this is in fact not the case. Whilst everybody is free to trade in Betfair’s political betting markets, few actually chose to do so.

6 “Serious people who study or work with these markets are not in the “markets are magic” camp”

Ok; fair enough – perhaps it is time to drop the word prediction then…..