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Prediction markets are just an information aggregation mechanism (and also a collective anticipation mechanism), which highly depends on what the experts on the ground can discover. Prediction markets are not a magical tool. Event derivative traders are like bees; they harvest information and the expert consensus out there. Prediction markets cannot be a substitute for the credit rating agencies —that’s the biggest stupidity I have ever heard in my life. (How come a CEO can state such a crétinery, and how come Jason Ruspini can endorse indirectly such an imbécility.)

If the InTrade prediction markets had been so useful during the recent (and on-going) credit crisis and stock market crisis, then the Wall Street Journal and CNBC would have immediately reported on their magical prowess. These media didn’t put InTrade on the spotlight during the recent crises for a simple reason: the InTrade prediction markets have a low social utility at this time. It’s just a tool of convenience for people who don’t want to bother looking into the various polls. InTrade cuts time for the busy people. InTrade is like a shortcut. It is somewhat useful if you are busy, but you can live well without it if you are not. (Do read the very last line of this interview.)

Can InTrade be a substitute for the credit rating agencies? Even asking the question is preposterous. I disagree strongly with InTrade CEO John Delaney (“Prediction Markets Have a Big Role to Play“). In my view, it is wrong to overvalue the real social utility of the prediction markets. We should not lie. We should not over-sell. We should tell the truth. We should call bullshit on John Delaney’s grandiose statements.

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