The purpose of prediction markets is to communicate insider knowledge.
There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.
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[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.
Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.
The stock market would not be noticeably less liquid if people had to hold stocks for 24 hours, but volume would drop like a rock.
This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.
The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.
Prediction markets are doing a bit of that. Some won't take bets on an assassination.
If they get assassinated, those markets will resolve to yes. At least the rules don't specifically exclude that.
>These are obviously false.
The purpose of the Ukrainian military is to exhaust the Russian army's materiel and test out our weapons. "Years-long stalemate with Russia? Yes, please." -the US. Seems like an overwhelmingly common Scott Alexander L.
Since when does country A decide what the purpose of country B's military is?
On smaller scale, this is the (in)famous "fire and motion"[0], which works in business as much as it does in military tactics. Make a move, forcing competitors to respond to it. If you're better at it than them (and lucky), you can choose your moves to make their responses go to your advantage.
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[0] - https://www.joelonsoftware.com/2002/01/06/fire-and-motion/
In any case, the blog is well regarded in these circles.
however, from his follow-up post https://www.astralcodexten.com/p/highlights-from-the-comment...:
> When people insist on the confusing and inappropriately-strong version, I start to suspect that the confusingness is a feature, letting them smuggle in connotations that people would otherwise correctly challenge.
i find this comical because it reads like a slightly-differently-worded POSIWID argument :)
Communicating insider knowledge is how the brokers legally/morally justify that business model.
The original theoretical purpose was to incentivize the creation of new knowledge, not reward insider knowledge that already exists. For example, to fund research that helps answer some unanswered question.
Today, the purpose is obviously gambling. We can see that clearly from the marketing.
There's a ton of scholarly debate about it, and at least most of the early stuff was pretty earnest. But rather than the debate becoming more refined and nuanced over time it seems to have bifurcated along partisan (or partisan adjacent) lines like everything else, similar to the Keynesian/Misesian divide.
The Misesian folks are a lost cause, IMHO. They're hardcore rationalists, self-indulging in circular moral arguments from assumptions that don't apply in the real world.