It may seem that small size of current prediction markets makes them prone to manipulation and it is easy to dismiss what these incredible tools indicate.

For example the market seems to indicate that Trump will lose his election.

However think twice. They are still likely to be right. It is not because prediction markets are likely to be manipulated for profit each time stakes are high, that they don’t work. You can argue that these markets have already all possible manipulations priced in.

For example currently one bet on a prediction market “indicates” that bitcoin will hit 50,000 $ before 2021 with a confortable majority.

Well this is actually quite likely. The trick is that it is sufficient for bitcoin to hit 50,000 $ for a very short time, a short time period such that most holders of bitcoin will not be fast enough to sell. Except those who have programmed this to happen automatically, however such sellers, even though sometimes making profit, are exposed to manipulation and will sell at 10,000$. Other smarter market players do not disclose their intentions and produce superior returns and also will own a majority of bitcoins at a moment when it will go up, after most other investors sold their stakes.

The real reason why all possible manipulations are NOT YET priced in inside these prediction games is that they are tiny compared to the total volume of ill intentioned market influencer activity which is a lot larger.

The tiny size of these markets is a reflection of our society and economy where most people consider that there is no hope whatsoever that tools might exist which link our today’s expectations to future outcomes. Our societies are stuck in a bad habit of being cheated and lied to at every step. Being disappointed and resigned is the norm. Prediction markets could change this and this is why they are a highly disruptive invention. They are also potentially dangerous.

ADDED in September 2020: Specialized decentralized prediction markets are bracing for the election. The same type of betting is also now implemented in Bitcoin.