Prediction markets can yield valuable insight into the dynamics of political campaigns, a conclusion we’-ve drawn from years of intensive study and research. We’-ve even proselytized about the value of these markets, extolling their ability to yield sharper insights than pundits or polls. […]
If this statement were true,
- Justin Wolfers’- columns at the WSJ would have been linked to by the blogging political experts. They never were.
- The blogging political experts would have adopted the prediction market tool (over than just quoting the InTrade prices out of curiosity). They never did.
Both the mystification of the prediction markets (mudding the primary indicators into commentary- suggesting that the traders’- anticipations are always sound) and their demystification (listing the primary indicators) don’-t do the trick: Economic science should be able to tell us whether the prediction markets on 2008 US elections are of high social utility, and whether other kinds of prediction markets are of higher social utility. I am not satisfied by what I have been reading, as of today. The prediction markets are rather a tool of curiosity, as of today, not much a tool of forecasting. The prediction markets are not used as a tool by the experts —-by “-the experts”-, I mean all the experts but the prediction market experts (who are expert in nothing else than pumping up the prediction markets): the political experts, the financial experts, the management experts, the oil production experts, the credit experts, the health care system experts, the automobile market experts, the wine market experts, the web technology business experts, the web advertising experts, the medical drug experts, the foreign affairs experts, the military experts, the aviation industry experts, the condom industry experts, the restaurant industry experts, etc.
[I]nfo value  is the added accuracy the markets provide relative to other mechanisms, times the value of accuracy in improved decisions, minus the cost of maintaining the markets, relative to the cost of other mechanisms. A highly accurate market has little value if other mechanisms can provide similar accuracy at a lower cost, or if few substantial decisions are influenced by accurate forecasts on its topic.
PREVIOUSLY: See Robin Hanson’-s take on Google’-s enterprise prediction markets.