Another way would be to have different 'authorities'. Each authority can pick which proposed questions are valid for that authority. If someone wishes to place a bet on a question that's been validated by at least one authority, then they get a list of authorities available for that question, and choose which one to use (which may be influenced by whether there are others betting via that authority in the other direction).
Different authorities could use different systems. So one might required the pre-agreed format style, another might use voting to resolve and allow any question, a third might use a panel of experts and allow free text questions by only in one domain (eg sports).
A reputation system could keep track of how popular different authorities are for different domains of question.
You'd have to pay a percentage of proceeds to the authorities in order to monetize staying an authority over selling your reputation for a guaranteed win in bitcoins. Especially in a single-authority system.
The basketball score is 94-72 late in the fourth quarter. "Second team wins" contracts go down to pennies on the dollar. But, the arbitrating authority has the fix in for "Second team wins", and buys out massive numbers of the same contract, then takes vast quantities of money out of the system.
For sports, however, there's an easy so...
Intrade, the prediction market website, has shutdown. According to their website:
With sincere regret we must inform you that due to circumstances recently discovered we must immediately cease trading activity on www.intrade.com.
These circumstances require immediate further investigation, and may include financial irregularities which in accordance with Irish law oblige the directors to take the following actions:
During the upcoming weeks, we will investigate these circumstances further and determine the necessary course of action.
Here's a link to an article on the slashdot website with more information about it:
http://slashdot.org/topic/bi/intrade-shuts-down-under-murky-circumstances/
Has anyone looked into the feasibility of creating an open source version of something similar, using a distributed application and a microcurrency (such as bitcoin), that couldn't be shutdown?