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.