I agree that simple, single stage game models do not usually predict important real world outcomes. I also agree that markets change players' incentives to act outside of that market.

However, society usually notices these blind spots and addresses them in one way or another. Szabo describes two real world problems:

1) Audits ignore outside accounts/trading activity

For public companies, deception of this kind is usually illegal. Key employees of a company certify on its annual report that “this report does not contain any untrue statement of a material fact or omit to state a material fact” or something to that effect. Also, insider trading can carry stiff penalties.

2) Prediction markets may become assassination markets

Murder is illegal. Also, profits obtained by illegal acts are subject to disgorgement in the United States.

…a prediction market on a certain person's death is also an assassination market. Which is why a pre-Gulf-War-II DARPA-sponsored experimental "prediction market" included a prop bet on Saddam Hussein's death, but excluded such trading on any other, more politically correct world leaders.

An “assassination market” on normal people exists today. It is called the life settlement market.