Yes, prediction markets “incentivize accuracy”, but there is no guarantee of success.

Paul Hewitt’s answer to Robin Hanson and Nate Silver:

Paul Hewitt:

Yes, prediction markets “incentivize accuracy”, but there is no guarantee of success. So far, we know that they *can* work in short (actually very short) term issues. There is absolutely no evidence that they work in any long (let alone very long) term issues. Worse, no one is looking into this issue.

As it stands, [prediction markets] cannot predict even one year hence. How in the world (warming or cooling) does anyone expect them to predict 10, 50, 100 or 1,000 years into the future?

The [prediction market] incentive for accuracy breaks down the longer the period to the payoff. Plain old human nature at play. People will not wait long periods for gratification, if there are shorter options available (other PMs, casinos, etc…). It is not a coincidence that craps is the fastest game in the casino.

Given the relatively small amounts that can be bet on real money [prediction markets], on very important issues (global warming), it is easy to find other incentives that would influence the accuracy of the markets.

It would depend on the intended use of the PM results, but you could see large carbon emitters exerting downward price pressure in a market that attemts to predict the likelihood of any signficant harm being caused (which would lessen the impact of government intervention, saving the emitter much larger compliance costs). The point, here, is that the “incentivization” only works if there are no, even larger, incentives to be inaccurate.

Non-business media never cite PM predictions, because [prediction markets] are not proven to work, yet. They must be reliable – both accurate and consistent. Neither has been proven at this point.

Robin Hanson’s conditional prediction markets are promising, but they aren’t going to get off the ground until, at the very least, prediction markets are proven to be consistently accurate. I believe that it can be done for a narrow range of topics, but not for a wide range of social or political issues. Until the markets are consistently accurate, they must be considered “broken tools” (some work, sometimes). Making the markets more complex (conditional PMs) will not “repair” the broken tools. This is a prescription for bruised thumbs, or should I say egos.