You propose to create a system that has the potential to be highly dangerous and illegal. In such a system I don't think it's easy to set up a web of trusts and trustworthy elections.
In a straightforward manner, the system would allow anoymous trading on stock options. We have laws against insider trading that you can't effectively enforce when you have an anoymous prediction market.
If I can anonymously place a bet of $1,000,000 that a specific person dies, than I also have an assassination market.
I note that perfectly legal bookmakers in Ireland already accept bets that President Obama will be assassinated while in office. link
It isn't precisely an assassination market, because people other than the assassin can join in the bet, diluting the odds.
But, yes, I take your point. With a single central authority, such bets could be rejected as invalid. With multiple authorities, it would require all of them to reject it. On the other hand, authorities that don't reject such bets as invalid might end up with a poor reputation for reliability.
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?