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Which way does Robin Hanson blow? When he was not involved, he had negative comments on internal prediction markets. Now that he is more involved (keynoting at a vendor conference), he has positive comments. Could it be that The Professor is biased? 
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#1. Justin Wolfers on the 2007 Consensus Point conference
Robin Hanson tells me that he is now (back to) bullish on prediction markets – he saw real evidence of real firms implementing prediction markets and taking them seriously.
#2. Jed Christiansen on the 2007 Consensus Point conference
Robin [Hanson] gave a fairly standard introduction to prediction markets lecture that some may have seen at other events or downloaded from his website. It was a good overview of the topic.
The question and answer period was the most interesting part with Robin. He was asked about manipulation, and provided some fairly convincing answers that manipulation shouldn’t be a worry (at least with the correct incentives.) Robin described the situation in terms of sheep and wolves. Sheep aren’t that knowledgeable- they are trading for any number of reasons, and are the “noise” in the marketplace. Wolves take advantage of that, and consequently they look for markets with lots of sheep. With better information, the wolves will easily have plenty to “eat.” The net result is that those noisy markets are accurate markets.
Another concept he talked about was creating a “fudge” account. Let’s say you want to weight one set of traders more than another, or simply want to “move” the forecast in one direction or another- create a “fudge” account to conduct those transactions. If after the account has been running for a while and it’s positive, you’ll know you’ve done a good job fudging. But if the fudge account is negative, you don’t know more than the market so just stop fudging and leave the market to itself. It’s a great idea, and fairly easy to implement.
UPDATE: Jed has more…-
Robin Hanson
Robin gave a quick addendum to his earlier talk, where he focused on the cost-value space of a prediction market. He described an evolution from betting markets, which have negative cost (aka profit) though little value to an organisation, to future prediction markets. Fully evolved prediction markets will certainly have a cost to operate, but the output could have tremendous value to a company.