The idea is that if people have skin in the game and the outcome, they’re going to be more interested in knowing true facts.
Political prediction markets where people bet on the outcome tend to be correct more often than opinion polls where people have no stake in the game.
Nate Silver periodically discusses what is in prediction markets … sometimes they are very strange.
The immediate flaw I saw is “the stock market”, which he mentions in the piece. The market is (obviously) a betting center where everyone has skin in the game. And you might say “Well, eventually it gets it right” which would be true, but individual bets in the market can be crazy for years one end. That’s plenty of time to start a war, bankrupt a company/country, or do all sorts of other mischief.
Most of us accept this principle when it comes to investing. If the price of Apple stock rises 10 percent one day, or falls 20 percent the next, we assume that it’s because smart investors with access to good information have changed their minds about the company’s prospects, and that it’s not just a random blip.
Now Apple is a pretty good case for him because it’s so massive and widely held. How about one of the other thousands of smaller companies? Maybe the stock went up because a lot of small investors “predicted” something good, but maybe it went down because a major holder just cashed out a bunch to buy a yacht, or Twitter, or something.
We’ve all seen irrational manias in the market, heck, we’re probably living with a few right now. That’s the funny thing; we won’t know until we know - which isn’t particularly helpful, I know.
I’d agree with him that I wouldn’t bet against it, after all “in the long run” and all of that. But I don’t know that I’m as convinced as some of those outlined in the story.
Rated “X”, for obvious reasons.
I gave a lot to Bernie. Bernie in the end did win. He just is not interested in the office.