Via Emile Servan-Schreiber of NewsFutures, John Auters in the Financial Times.
[…] This leads to [Justin Wolfers]‘- claim that [prediction markets] are the best way to aggregate information. This is true of any given amount of information. Take three economists and make them trade out a market over their predictions for next month’-s inflation number, he suggests, and they will arrive at a more accurate prediction than a poll of the same three economists. In a market, those with stronger conviction (or inside information) can express that conviction- those less confident will not be willing to stake money. […]
Prediction markets remain subject to the same weaknesses as other markets. The principle of “-garbage in, garbage out”- [*] applies. If there is only poor information to aggregate, they will be as wrong as everyone else. […]
It would make sense to incorporate these odds when making investments. […]
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Excellent.
(I don’-t get his micro slam against the wisdom of crowds. Anyway.)
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[*] As explained in the prediction market explainer published on the frontpage of Midas Oracle.
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