Comment Text:
Prediction markets are good for a democracy (especially) because they tap into "the wisdom of crowds," which is one of the reasons democracies can work. Where they get into trouble is when they are places where people can make a massive amount of money, which encourages them to bend the rules. The solution would be to make everyone place bets in their own name (and social security number, for taxes on the winnings) but limit either the size of the bet (maybe $1,000) or the amount that can be won (10x that?). The point is you want people participating for the thrill of being right (with some financial reward for their efforts) but not with the possibility of such a big prize that they are willing to do almost anything to get it. People would need to place bets after their IDs are verified to eliminate the possibility of using bots to make multiple bets to get around the limits.
Some have argued that insider trading should be allowed, because it makes the markets more accurate (and would allow people who are afraid to be a whistle blower put the information out there by betting on the income, though the flip side would be that a potential whistleblower might stay silent in order to make money on the market instead of going through the regular channels). So I'm ambivalent as to whether insider trading should be banned or encouraged. I think I'd allow it so see how it works, and then adjust if necessary.
