Wednesday, December 23, 2015

Krugman Gets It Right on Prediction Markets

In my view, he is spot on. He writes:
I’m not a huge believer in prediction markets, which seem more to reflect conventional wisdom than to offer profound insights....
I wouldn't say this is always the case, but most of the time.

1 comment:

  1. If free prediction markets stubbornly reflect conventional wisdom even when different than better predictions, then informed people can exploit them as infinite money machines. They need only arbitrage their superior information repeatedly, backed by escalating winnings, taking advantage of the persistently incorrect odds.

    That's a fantasy of course, because market odds adjust so the more successful bettors with more longevity and money to wager move the odds toward their more successful position in proportion to how successful they are. I.e., regardless of conventional wisdom, prediction market odds necessarily reflect the best possible predictions out there because there is profit in shifting them to.