Donald Luskin outputs a bad explainer on prediction markets.

Chris F. Masse February 28th, 2008

Firstly, I’d like to say that I respect Donald Luskin as a Wall Street professional and as a libertarian blogger. But I think that his explainer is too simplistic.

Not a single word on the concept of probabilistic prediction:

The financial incentive to get it right, and the ability to draw on bettors from around the world — anyone who might have any information on whatever proposition is being bet on — is what gives these markets their uncanny predictive power.

Mixing prediction markets (a reality) with decision markets (a utopia):

Economics professor Robin Hanson, who has studied prediction markets extensively, told me he envisions a “futarchy” — government by futures contracts traded in a prediction market.

Claiming that these information aggregation mechanisms (the prediction markets) will supplant the advanced indicators which they feed on:

Today prediction markets are threatening to replace political polling — they’re certainly doing a better job. Tomorrow, who knows? Prediction markets might replace politics itself.

My readers will prefer the Midas Oracle explainer on prediction markets.