Prediction markets are useful for investors who want to place bets on the outcome of specific events such as “Will IBM beat its earnings by at least ten cents this quarter?” Today the reported “estimate” for corporate earnings is nothing more than the mean or median of a few so-called expert analysts. By harnessing the wisdom of the crowds, we can form more realistic predictions of the future, leading to more efficient markets. Prediction markets can serve as a hedge against global uncertainty and “black swan” events: “Will Greece’s economy shrink by more than 15 percent this year?”84 Today,
...more
