Prediction markets will be useful for investors as a complement to the stock market. It enables:
Replacing bets on the whole company with bets on specific, fundamental drivers of its commercial prospects.
Making private companies indirectly investable via prediction market bets on their corporate outcomes.
The former makes the research problem more tractable, and due to its heavy overlap with the analysis investors already do for these companies, could conceivably drive sufficient volume to usefully function as a source of information per se, not just as an investment asset. Especially if the market registers high uncertainty, or high confidence in an event that contradicts our priors (like a very high PoS on a phase 2 clinical trial).
It would be even better if the companies themselves could use prediction markets as sources of liquidity. There's already a partial equivalent. Convertible notes give the company access to immediate cash, and convert to shares in the company after an event occurs. We could imagine a platform that enables companies to sell convertible notes to the public that convert to shares if a clinical trial succeeds -- or possibly if it fails, obviously for a much lower price!
Is this under the theory that extractive insider trading is ① good actually, ② bad/neutral but tolerable, or ③ bad but preventable?
(By "extractive insider trading" I mean, for instance, a person who (through their job) has control over an outcome or substantive non-public information about a plan, privately making bets on that outcome or plan.)
For me, it's under the theory that extractive insider trading is bad. I don't know if it's preventable, though we've seen instances where insider trading in prediction markets appears to have been successfully policed.
But in general, I'm just thinking as an investor myself who can't invest in private markets and is often frustrated with the complexity of evaluating the whole package of a corporation rather than the specific facets of it my training equips me to evaluate best. On the whole, I'm still bearish on prediction markets, particularly as a source of information and also due to the unregulated, "bounty," insider-trading-facilitating aspect.