I suppose I should qualify that, as it's a bit unfair to Buffett.
Yes, Buffett is a professional investor and more expert than me at it, which counts for quite a bit. But he's also human, and humans don't do a very good job of anticipating economic activity beyond a horizon of a few years. Importantly, most humans have a laughably brief idea of what constitutes a "long term".
I'd estimate that Buffett's bet constitutes quite a few bits of evidence toward the profitability of Wal-mart over, say, a 2 year time horizon. But I was already leaning in that direction, so it doesn't move my posterior probability by very much. In contrast, I'd estimate that it provides a much smaller number of bits over a 10-year horizon: if I had to name a number, I'd say 2 bits. That's a nudge in Buffett's direction, but not a very big one.
Now, Wal-mart is not so foolish as to have played the derivatives shell games that exploded in the financial industry, nor do they have any substantial debt exposure. But I think a big source of risk, unconsidered in the standard analysis and probably unconsidered by Buffett, is their interdependence on China.
Sidebar:
Inflation triggers human biases: it causes people to miscalculate and believe they have more utilons merely because they have more money. (This is the essence of Keynesian stimulus: trick people into diverting their money from savings into spending. Regardless of whether you hold this is good or bad, it is what stimulus does.) Spending within an inflated economy is a complicated matter that I won't delve into, but international trade is where it gets interesting.
Imagine two countries, A and B, which are trade partners. A injects a stimulus. People in A start buying more goods, including imported goods from B, with their freshly-printed money. This creates a trade imbalance between A and B. When this happens the buyer (implicitly or explicitly) exchanges A's currency for B's. On the currency exchange markets, B's currency goes up (demanded) while A's goes down (supplied). Thus, in the absence of further intervention, the exchange rate will cause the price of B's goods to rise in A's currency until A can no longer afford them, putting the brakes on the trade imbalance.
However, the end of the trade imbalance can cause adjustment problems: when people made plans, they baked in assumptions that simply weren't true. People in A used to cheap $GOOD are suddenly faced with rising prices. Manufacturers in B were used to steady output but now face a significant slowdown, perhaps turning that new factory from a brilliant investment into a frustrating white elephant.
Magic wand: more stimulus! Now B gets in on the act: B injects stimulus, tricking the people of B into spending instead of saving and filling the factories with busywork. Thanks to imports and foreign investments, money starts to flow out of their country, causing their currency to come back down from the stratosphere. And the cheap currency exchange rates make A look like a good investment now...
But in the end, what has this circle accomplished: both A and B have severely devalued their currencies in relation to any third-party country C, both have depleted their citizen's savings accounts, and both have huge government debts due to their respective stimuli. Oh, and each has lots of manufacturing capacity that goes to waste unless the other is actively digging a money pit.
End sidebar.
Note that what the U.S. and China have is not quite what I described above. China is inflating, but the U.S. is inflating faster, and the dollar-yuan currency peg means the exchange rate isn't closing the trade valve. Therefore the trade balance persists, with China the continuous exporter. This creates a huge pileup of U.S. dollars that no one is sure what to do with, and it also means there's little incentive for people in China to import from U.S. manufacturers. (The Chinese government owns most of the dollars: it printed yuan to buy them and thus fix the price. Therefore the dollars are not in private hands, therefore there is little investment flowing into the U.S. from China.)
China is painfully exposed: the situation is clearly unsustainable, it took herculean effort to keep it from exploding this time around, and it's going to explode in the not-so-distant future. In desperation to keep the Keynesian pump primed, the Chinese government has plowed enormous amounts of stimulus into their domestic economy: the government funded the construction of an entire city, Ordos, merely to boost GDP. (Spoiler: no one lives there, but prices are sky-high: real estate "always goes up" in China.) The next major economic crisis will probably (0.80) start with China, and will almost certainly (0.98+) bring about a crisis severe enough that it puts China into a recession.
From Wal-mart's perspective, stimulus in China is a mixed blessing: it provides a tiny relief valve through which piled up U.S. dollars can leave the country, and it also subsidizes Chinese manufacturers to lower prices, but it also creates inflationary pressure within China and thus causes labor and manufacturing prices (measured in yuan, not utilons) to rise dramatically. The whole thing a chaotic powder keg, and the blast is not directionally pointed away from Wal-mart.
In short, expect China starting today to follow a similar 30-year trajectory as the one laid out by Japan starting in 1980, complete with one or more "lost decades". (The situation is not exactly analogous, but strongly suggestive.)
I think I basically get the idea behind prediction markets. People take their money seriously, so the opinions of people who are confident enough to bet real money on those opinions deserve to be taken seriously as well. That kid on the schoolyard who was always saying "wanna bet?" might have been annoying but he also had a point: your willingness or unwillingness to bet does say something about how seriously your opinions ought to be taken. Furthermore, there are serious problems with the main alternative prediction method, which consists of asking experts what they think is going to happen. Almost nobody ever keeps track of whose predictions turned out to be right and then listens to those people more. Some predictions involve events that are so rare or so far in the future that there's no way for an expert to accumulate a track record at all. Some issues give experts incentives to be impressively wrong rather than boringly right. And so on. These are all good points, and they make enough sense to me to convince me that prediction markets deserve to be taken seriously and tested empirically. If they reliably produce better predictions than the alternatives, then they deserve to win the day.*
But there is a particular claim that is made about prediction markets that I am skeptical of. It starts with the well-known idea, usually associated with Friedrich on Hayek, that a major virtue of free markets is that there is all kinds of useful information spread out in local chunks throughout the economy, which individuals can usefully exploit but a central planner never could, which is reflected in market prices, and which in turn cause resources to be allocated efficiently. It then goes on to argue that prediction markets have a similar virtue. As an example, suppose there's a prediction market for a national election, and you happen to know that Candidate X is more popular in your little town than most people think. There's no way that some faraway expert could have known this or incorporated it into his or her prediction in any way, but it gives you an incentive to bet on Candidate X, which causes your local information to be reflected in the prediction market price. Lots and lots of people doing the same thing will cause lots and lots of such little local pieces of information, which couldn't have been obtained any other way, to also be reflected in the market price.
But it seems to me that this "Hayekian" mechanism should work a lot less well in the prediction market context than in the standard context. In the standard version, you benefit directly from a piece of local information that only you happen to have. If you know that a particular machine in your factory only works right if you kick it three times on the left side and then smack it twice on the top, then you can do that and directly reap the benefits, and the fact that you were able to do it (i.e., the fact that output in your particular industry is very slightly less scarce than someone who didn't know that trick would have thought) will be reflected in the market price. In contrast if you're the only one who knows that Candidate X is surprisingly popular in your little town (say because you're the mail carrier and you count yard signs along your route), could you really benefit from trading on that information? There are a number of barriers to your doing so. First, there are transactions costs associated with trading. Second, there is garden-variety risk aversion: if you're risk-averse then you won't want to invest a large share of your total wealth in this highly risky and urnhedged asset, which means that you won't bet much and so the price won't move much to reflect your information. Third, in order to believe that your little piece of local information constitutes a reason to bet on Candidate X, you'd have to believe that the current price accurately reflects all the *other* pieces of information besides yours. In some sense you should believe this: if you thought the price was off and you thought you knew which direction it was off, that would be a good reason to bet against the mispricing. But even if you had no actionable beliefs regarding a mispricing, you might just not have a lot of confidence that all the other information has been aggregated correctly. This would translate into another form of risk, and so risk-aversion would kick in once again. Fourth, there may be uncertainly about whether you really are the only one who knows knows your piece of local information (maybe the paper boy also noticed the yard signs, but then again maybe not). If you're not sure, then you're not sure to what extent that piece of information is already reflected in the current price. Again, you might have beliefs about this, and those beliefs might be right on average (though they might not) but it is yet another layer of uncertainty that should have an effect similar to ordinary risk aversion.
I asked Robin Hanson about this once at lunch a few years ago, and we had an interesting chat about it, along with some other George Mason folks. I won't try to summarize everyone's positions here (I'd feel obligated to ask their permission before I'd even try), but suffice it to say that I don't think he foreswore the Hayekian idea entirely as an argument in favor of prediction markets. And there is a quote by him here that seems to embrace it. In any case, I'd be interested to know what he thinks about it. And of course it matters whether or not this Hayekian claim is being made for prediction markets, and it matters whether the claim is correct, because whether or not prediction markets have this additional theoretical advantage should go into one's priors about their merits before evaluating whatever empirical evidence becomes available.
*The question is not purely an empirical one though. There are issues related to how susceptible prediction markets are to manipulation, how well they'll work when the people doing the betting about what will happen also have some influence over what does happen, whether they'll work for rare or distant events, or for big picture questions where in some states of the world there's no one around to pay out the winnings, and so on. So even a strong empirical finding that prediction markets work in more straightforward settings is not the last word on the subject, which means that there will be a continuing role for theoretical arguments even as more evidence comes in.