This argument has roughly the same shape as my reasoning regarding why prediction markets are likely to have much worse predictive power than one would naively guess, conditional on anyone using the outputs of a prediction market for decisions of significance: individual bettors are likely to care about the significant outcomes of the prediction. This outcome-driven prediction drive need not outweigh the profit/accuracy-driven component of the prediction market—though it might—in order to alter the prediction rendered enough to alter the relevant significant decision.
Perhaps the prediction market concept can be rescued from this failure mode via some analogue of the concept of financial leverage? That is, for predictions which will be used for significant decision purposes, some alteration may be applied to the financial incentive schedule, such that the expected value of predictive accuracy would remain larger than the value to predictors realizable by distorting the decision process. Alas, I find myself at a loss to specify an alternate incentive schedule with the desired properties for questions of high significance.
This argument has roughly the same shape as my reasoning regarding why prediction markets are likely to have much worse predictive power than one would naively guess, conditional on anyone using the outputs of a prediction market for decisions of significance: individual bettors are likely to care about the significant outcomes of the prediction. This outcome-driven prediction drive need not outweigh the profit/accuracy-driven component of the prediction market—though it might—in order to alter the prediction rendered enough to alter the relevant significant decision.
Perhaps the prediction market concept can be rescued from this failure mode via some analogue of the concept of financial leverage? That is, for predictions which will be used for significant decision purposes, some alteration may be applied to the financial incentive schedule, such that the expected value of predictive accuracy would remain larger than the value to predictors realizable by distorting the decision process. Alas, I find myself at a loss to specify an alternate incentive schedule with the desired properties for questions of high significance.