Interesting. I havent read the book and I dont know the theory...but crowd being good at predicting market doesnt sound too true to me. From my experience, crowd is always wrong and those individuals that goes against it make money. Can someone elaborate more?
Prediction markets are pretty unintuitive. You'd expect that an all knowing expert would be able to make better predictions. The problem is, most "experts" aren't actually experts.
If you look at US Presidential elections and compare polls to the Iowa Electronic Market (a prediction market), the IEM is more accurate every single time. It's predicted every election correctly for the past 25 years (prior to that, it didn't exist).
Almost all economic studies show prediction markets are one of the most accurate tools to predict future events, it's one of the few things economists are actually in agreement on. One key thing is, prediction markets are good for predicting _events_. A prediction market predicting the stock market wouldn't do much besides mirror the stock market (because the stock market itself is a prediction market on the future value of companies).
Prediction markets work for two main reasons 1) they use markets to reveal information in a price/odds estimate that otherwise wouldn't have been revealed, and it can be revealed anonymously and 2) if you have enough volume/a large enough crowd, their errors cancel out and an accurate forecast emerges. 2 is why over 95% of mutual fund managers can't beat something as simple as the S&P 500, and of course, we don't propose that prediction markets can do any better at predicting the stock market than they can. We do propose, however, that they're better at predicting events.
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