Can prediction markets really cure the madness of public opinion? Vitalik provides the answer.

[Coin World] The prediction market can serve as a remedy against extreme views in emotional topics. This is an interesting point raised recently by Vitalik.

At first glance, it may seem like there are loopholes—indeed, prediction markets could potentially encourage participants to cause harm for profit in extreme situations. But hold on, this logic does not apply to small-scale prediction markets for large-scale events. Moreover, to be honest, traditional stock markets have similar issues; politicians and capitalists can still profit from disasters by short-selling stocks.

What is the real difference? Just look at the comparison between prediction markets and social media or mainstream media, and you'll understand. In social media, no one is held accountable for their statements; you can express yourself freely. But prediction markets are different — your judgment is directly linked to profits and losses. This mechanism forces the system to constantly approach the truth, and over time, the probabilities reflected by market prices will more accurately mirror the uncertainties of the world than any other channel.

Another advantage is the price ceiling. The prices in prediction markets are always limited between 0 and 1, which makes them much healthier compared to regular markets. The effects of reflexivity, the fool theory, and market manipulation are much smaller on them. In other words, prediction markets are harder to manipulate and more likely to reflect the true confidence of market participants.