the market price gives you a number between 0 and 1, which should move higher as the event becomes more likely, so it's pretty useful.
however interpreting it as a probability, or an average of agent beliefs, or anything like that, seems tricky. i assume these internal markets are not deep and liquid enough that you can just throw up your hands and say "EMH". it works if you assume risk-neutral traders who will just trade up to their correct price but as I understand it, breaks down with realistic traders who may limited capital and are usually somewhat risk-averse.
i wonder how these prediction markets dealt with that. was there any postprocessing of market prices to get final probabilities? based on interviews with traders or observed trading behavior, did the traders behave in such a way that the market price could be interpreted as "pretty much" just a probability?
(Author here.) This is generally checked via calibration charts, e.g. bucketing markets at various points in time into 0-5%, 5-10%, etc; then counting how often the underlying events actually happen. The more they match, the more it's reasonable to interpret the market prices as probabilities.
Google published [1] one such calibration chart on its current prediction market in late 2021. Also, the 2009 paper in the article [2] on Google's first prediction market published one too.
You cannot really do postprocessing to the market price to get the average belief back out, because the bounds aren't very tight: a market price of 50% could correspond to an average belief anywhere between 29% and 71%.
however interpreting it as a probability, or an average of agent beliefs, or anything like that, seems tricky. i assume these internal markets are not deep and liquid enough that you can just throw up your hands and say "EMH". it works if you assume risk-neutral traders who will just trade up to their correct price but as I understand it, breaks down with realistic traders who may limited capital and are usually somewhat risk-averse.
i wonder how these prediction markets dealt with that. was there any postprocessing of market prices to get final probabilities? based on interviews with traders or observed trading behavior, did the traders behave in such a way that the market price could be interpreted as "pretty much" just a probability?