If you could invent something to fulfill an economist’s dream, it would look an awful lot like a prediction market. A world where every uncertain future can be priced, hedged and insured against? Kenneth Arrow and Gérard Debreu would approve. A market mechanism to co-ordinate the decentralised wisdom of crowds, ensuring the accuracy of such prices? Adam Smith and Friedrich Hayek sought just that.

The absence of serious capital reflects several factors. One is scale. Although presidential races draw widespread interest—some $3.7bn was wagered on Polymarket in the most recent—other events attract less action. Consider inflation, an important economic variable. The market for Treasury inflation-protected securities, which reflect investors’ expectations for consumer prices, is worth nearly $2trn. By contrast, the most active financial market on Polymarket (“What price will bitcoin hit in June?”) has welcomed wagers worth just $22m. Low liquidity poses a number of challenges. The biggest investors may have hedging needs that exceed the size of the markets themselves. Moreover, thin markets are vulnerable to price manipulation by large traders, as has happened several times in prediction markets.