Could 2009 be a boom year for prediction markets? Two developments suggest this might be the case. First, many economists are predicting very low inflation (or, according to Nouriel Roubini, aka Dr. Doom, we may even see deflation.) When you trade in a prediction market, your money might sit for six months or a year without earning any returns while inflation slowly eats away at its value. Very low inflation (or even deflation) makes prediction markets a bit more attractive.
Second, with predictions of sluggish global growth in 2009, it's anyone's guess when stock markets will resume steady growth. Risk averse investors may find that prediction markets look - relatively speaking - a bit more attractive. While firms trading on the New York Stock Exchange may post profits or losses in any given quarter, prediction markets always pay out what they took in (minus a small commission). That predictability may be just what some investors are looking for.
Update: There's a third reason that 2009 may also be a good year for prediction markets. With governments taking a larger role in the economy - and particularly the financial sector - all over the globe, the decisions governments make become ever more important to private firms. Prediction markets offer the opportunity to hedge at least a bit against political decisions that may not be advantageous to particular firms.
Any other predictions about prediction markets?
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