Fake Prediction Markets Useless
from the it-doesn't-even-work-in-theory dept
In an attempt to harness the wisdom of crowds, many so-called prediction markets have sprung up where users can bet on things like who will be the Democratic nominee in ’08, or the winner of American Idol. In theory, the trading in a given contract will reveal the probability of such an event happening. A few of these markets, like Tradesports, are real money exchanges, but most of the ones that pop up, like the latest one, Inkling (it appears to have launched in the last week, and claims investment from Paul Graham), involve trading in fake money. There are several others, including one on technology trends hosted by Yahoo! and O’Reilly Publishing. But what’s the point of a play-money exchange? Prediction markets are supposed to get people with information and insight to put their money where their mouth is, taking a risk for an opportunity to profit. A fake-money exchange will get participants with time to waste, who don’t necessarily know much about the subject matter they’re betting on. What information will this reveal? One hurdle, at this point, is government regulation which greatly restricts this type of trading. Still, with little to be gained from these endeavors, they hardly seem like a good alternative.