While you're correct that real money markets will do a better job of filtering the less knowledgeable, play money markets are still able to hold their own again

While you're correct that real money markets will do a better job of filtering the less knowledgeable, play money markets are still able to hold their own against real money PMs. There have not been many studies comparing the two, but what few there are find play and real money markets do nearly as well as each other - with caveats. Both fake and real money markets offer better than baseline predictions but real money prediction markets do better when signals are less clear, i.e. no odds markets to serve as a basis. And according to the markets studied in "PM: Does Money Matter", the discrepancy is eliminated when play money markets weight based on confidence (amounts bet this takes past success into account by noting larger bets also reflect wealth which can only be accumulated by past success in play money settings). Even more than money, the key factors in Prediction Market Design are the availability of tools which enable the easier aggregation of information and strong incentives (monetary or not) for being correct. http://aws.iwi.uni-leipzig.de/em/fileadmin/user_upload/doc/Issues/Volume_16/Issue_01/V16I1_Statistical_Tests_of_Real-Money_versus_Play-Money_Prediction_Markets.pdf http://aws.iwi.uni-leipzig.de/em/fileadmin/user_upload/doc/I...