I have a problem with "prediction markets" as news view. They just aren't informative enough.
If the price of oil goes down is that due to: A reduction in demand. an increase in supply, a large amount of investors finding a better investment or a large amount of investors wanting cash (due to having to pay creditors/taxes).
I want them to tell me enough information so that I can begin trading in an informed manner. When you see the market expects rain fall on montana is 2 cm in a day, what information is this based upon? If you read about a newly created huge man made lake in the are which you expect to change the micro climate, how do you know whether the simulations people and betting using are running take this into consideration?
If I don't get this information I can't trade with expectation of being able to make a profit and the market doesn't get any information that I may have that it doesn't. I could try and reverse engineer peoples climate models from the way they trade, but that is pretty hard to do. So I would like to try and lower the barrier of entry to the market by giving more information to potential players.
This lack of information is due to the signals each trader sends to the market, they are binary in nature buy or sell, with the traders strategy and information she used a black box that we can't get into.
As potential traders we don't know if the market is taking certain information into account with the price we are shown.
The only way I have thought of being able to get at some of the information enclosed in the black box, is to only allow programs to bid in a market. The programs would be run on the markets server and have acces to news sources, financial data and government reports. The programs could be stopped at any time by the trader but otherwise not communicated with or updated. So the would be trader would have to build models of the world and ways of processing the financial data.
How then would we get at the information? The source for each program that wanted to trade would be held in escrow and it would be released as open source code when it was withdrawn from the system. This would create a time lag, where people could profit from a better predicting system, but also allow everyone else to catch up after a certain time. There would also be some significant financial cost to starting a new bot so that people would not just start lots of one shot bots that did a single action based on their hidden knowledge.
It would have the side affect of have different biases to the human market. possibly more accurate as people would have to build the bias into the program and it would be visible and open to exploitation if it became prevalent and known.
I don't see this as a reality any time soon, but I would be interested if anyone else had any, more easily implementable, ideas about improving the informativeness of the markets.