The explanation usually put forward by proponents is simply that these omniscient markets are unfortunate victims of broader prohibitions on gambling. If we could change these rules, we might know accurate probabilities of many more future events. We disagree. Instead, our view is that prediction markets on everything – liquid markets over a wide range of important topics – will not work without subsidies. These subsidies would be expensive, so other forms of information aggregation are usually more attractive. The scarcity of prediction markets in the world today is not a failure of regulation, but a sign that they are much less promising than many advocates, including the authors of this piece, once hoped.

Rather than regulation, our explanation for the absence of widespread prediction markets is a straightforward demand-side story: there is little natural demand for prediction market contracts, as we observe in practice.

Prediction markets, unlike most asset markets, are zero-sum – in fact they are negative-sum, once you factor in platform fees. And if your money is in a prediction market, it can’t be invested in equities, or be earning interest in the bank, either.