Before the next election, there are a few features which I think should be implemented in some prediction market.
A conditional market is a bet that an event will occur, if another event occurs. For example: “if Vance wins the 2028 election, the unemployment rate in 2030 will be at least 2%”.
This will allow the markets to evaluate a candidates claims before they get elected, and therefore allow them to be used by voters to decide who to vote for.
There will be huge incentives to manipulate these markets, much like there are huge incentives to manipulate public opinion via the media, but the hope is it will be harder to manipulate markets than public opinion. If institutions like hedge funds get involved, I think it’s quite likely they will trade against this manipulation, and political campaigns have no hope of overpowering them.
One blocker to these long term political-consequence bets is the opportunity cost of the collateral being held in these bets.
If I bet you $200 that Vance would increase the GDP over the course of his presidency, neither of us can invest that capital elsewhere for the duration of Vance’s presidency, and neither can the exchange. This will reduce the profitability of these trades, and therefore the amount of capital it’s worth investing in these predictions, and therefore the accuracy/trustability of the predictions.
To solve this, instead of denominating the bet in cash, we denominate the bet in something which appreciates in value, like an S&P 500 ETF share.
So now we both bet $200 worth of S&P 500 shares, which leaves $400 worth in collateral sitting in the exchange, and by the time Vance’s term is up, that $400 would have appreciated on average 4 years of 10% compounding returns.