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timtyler comments on Test Your Rationality - Less Wrong
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Prediction markets tend to be zero-sum games. Most rational agents would prefer to play in a real stock market - where you can at least expect to make money in line with inflation.
Tim: but don't prediction markets have a lot of benefits compared to stock markets? They terminate on usually set dates, they're very narrowly focused (compare 'will the Democrats win in 2008' to 'will GE's stock go up on October 11, 2008' - there are so many fewer confounding factors for the former), and they're easier to use.
Prediction markets as implemented in the real world mostly use fake money, which is a drawback.
Well, you don't have to use the fake-money ones. Intrade and Betfair have always seemed perfectly serviceable to me, and they're real money prediction markets.
On a related point, fake money could actually be good. There's less motivation to bet what you really truly think, but not wagering real money means you can make trades on just about everything in that market - you aren't so practically or mentally constrained. You're more likely to actually play, or play more.
(Suppose I don't have $500 to spare or would prefer not to risk $500 I do have? Should I not test myself at all?)
The relevant category is constant-sum games, and stock markets are that as well if liquidity traders are included in the relevant trader set. One can subsidize prediction markets so that all traders can gain by revealing info.