I saw this piece and knew, instantly that it was for me. OH BOI! #1588867

INCREDIBLE:

James Surowiecki, a journalist, wrote a book called The Wisdom of Crowds. He showed that crowds can be remarkably accurate in reflecting objective values when certain conditions are satisfied, but highly inaccurate when one or more of the conditions are violated. Surowiecki offered a single framework to explain the “tolerably sensible” and the “blockhead”.

Conditions for a crowd actually be any good at aggregating objective information is

• cognitive diversity
• depth (lots of people; law of large numbers etc)
• incentives

Cognitive diversity means that people with different points of view are participating in the process. Aggregation provides a mechanism to combine information into a price. And incentives reflect rewards for being right and penalties for being wrong. The costs to participate and correct mispricings also affect results.

and somehow, that's different from financial markets?

For stock market investors, the lesson is to look for opportunities arising from breakdowns in cognitive diversity. When independent opinions give way to imitation, prices can go to bullish or bearish extremes. The wisdom of crowds yields to madness when investors act as Baruch’s blockheads.

"Stocks generally lack a similar settlement, allowing narratives and herd thinking to emerge and persist"

Don't quite follow this bit... why would the tails be mispriced like that?

Prediction markets are very well calibrated as measured by the relationship between the implied probability and the outcome. A closer look reveals that the win rate is slightly above average for high contract prices and slightly below for low prices. This is the “favourite-longshot bias,” which is underestimating the winning rate for high-probability bets and overestimating the winning rate for low-probability bets.

and also, isn't the point that the value of the contracts change?

How Prediction Markets Contracts Differ From Stocks

The high degree of calibration means that contract prices are a reliable source of information about the likelihood of future events in the aggregate. Prices in the stock market, on the other hand, do not offer such a clear signal. This makes sense. Prediction markets forecast a definitive outcome that is often revealed in relatively short order. Stocks generally lack a similar settlement, allowing narratives and herd thinking to emerge and persist.

And for the "price manipulation" objection to pred markets:

price manipulation in a prediction market is difficult to sustain. Such attempts have a long history, including on political contracts in the 1800s. But economists who studied the phenomenon concluded “that the speculative attacks initially move prices, but these changes are quickly undone”.

...and forecasting is amazing #1556891, #1559479

these markets also offer important benefits. One is substantial informational value, which may continue to rise as AI agents, which now forecast as accurately as the best human forecasters, become involved. Prediction markets may offer valuable cues for businesspeople and investors.

Another is that these markets also allow participants to hedge risks. For instance, the owner of a bar in New York City offered free tabs up to $100 if the Knicks won Game 1 of the 2026 NBA Finals. He bet $5,000 on the Knicks and the payout covered the bar tabs. In this way, a zero-sum contract can be useful for risk management.

yeees, we know; we wrote about it at the time. (And as Undisc objected... not a value-add from prediction markets; any odd regular sports book would achieve the same)