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People seem to think prediction markets not making a specific prediction implies they don't work. That's not even wrong. Consider a perfect prediction market.
by yummyfajitas 10y ago
People seem to think prediction markets not making a specific prediction implies they don't work. That's not even wrong.
Consider a perfect prediction market. This means that if it says "the probability of X is 0.6" 100 times, then approximately 60/100 times X will occur. If you wrongly interpret that to mean "X will occur", a perfect prediction market will be "wrong" 40/100 times.
That's your failure to interpret the market, nothing else.
- tobias3 10y ago"Not working" means not assigning the correct probabilities to the outcomes over time with regard to the information available. The article mentions some of the biases which could cause this. Of course this is difficult to measure, because there are not enough natural experiments (i.e. 100x Brexit) and there are many variables at play here. We'll have to wait for papers with regards to Brexit + predicition markets for a more detailed analiysis, but still, for the time my trust in prediction markets is down a bit.
- vegabook 10y agoThat is too simple. There was strong autocorrelation in prediction market odds changes which suggests herding. You are not taking this additional important information into account.