Almost lacking was what I took to be Robin Hansen’s original insight:
When real money is on the line the flakes will soon lose so much money that they will forced out of the market, thus eventually improving the quality of the predictions.Anecdotes seemed to indicate that some useful information was elicited even with play money.
One question from the audience concerned insider trading. The answer by one of the panelists was that this mechanism is not meant to be fair, but to elicit good information. SEC rules against insider trading are in support of fairness which is valuable in its ability to attract investors who cannot afford to personally audit the company. For prediction markets we need to encourage not those with money to invest, but those whose insights and (inside) knowledge best pertain to the question. Insiders are welcome.
This introduces a moral hazard of the insider making money in the prediction market at the expense of public company whose information he abuses. Leakage of such information impacts the stock price and this will upset some. It is likely to violate the letter of the SEC law. It is also likely to make stock trading fairer if the prediction market prices are widely known, as they can presumably be. All this founders on the simple observation that the insider can have a more direct effect on the stock price by buying or selling the stock directly. This reduces to the unfairness of asymmetric information. Should the seller gain an advantage in a transaction where he is privileged to be near the source of unfolding events such as finding gold or freezing crops.