PrepTest 157 - Section 4 - Passage 2 - Question 10

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Passage A.

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Intro to Topic · Markets Good

Markets efficiently distill the collective wisdom; they require buy in; they reward being right.

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Markets for Forecasting · Performs better than 75% of polls

The Iowa Electronic Markets can forecast election results. Buyers and sellers can trade on their bets of which candidate is more likely to win.

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Markets are Efficient · Information spreads very quickly

Experiment that demonstrated how quickly "inside knowledge" can spread in the market via price as a signaling mechanism.

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Intro to Topic · Markets are not perfect

Sounds like a disagreement with Passage A's position...

Example · Iowa Electronic Markets

The Iowa Electronic Markets didn't get a recent election result right until a few days before the election.

Analogy · Markets are like racetracks

You make bets based on what you expect the payoff to be

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What do "prediction markets" actually do? · Reflect majority opinion

They are not omniscient. They are a better version of polls that generates more serious responses.

Passage Style

10.

The authors of the two ████████ █████ ██ ████ ██████ ██ █████ ██ █████ ███ ██ ███ █████████ ██████████ █████ ████████

Question Type

Author’s perspective

Implied

Split Approach: After passage A, eliminate any answer choice that author A wouldn’t agree with. Then, after passage B, choose the remaining answer choice that passage B would agree with.

Sequential Approach: This one is difficult to predict because author A argues that markets are efficient and effective, while author B argues that at least certain markets (predictive markets) don’t make reliable predictions. We should use POE on the answer choices, choosing the one answer that both authors would agree with.

They are a ████ ██████ █████████ ██ ██████ ██████ ████ ███ ███████

Unsupported by author A. He suggests markets can be more effective than committees and polls, but not that they’re better than any expert.

Also unsupported by author B. She doesn’t compare the reliability of markets to experts.

They move in ██████████ ██████ ███ █████████████ █████

Unsupported by author A. He thinks markets accurately converge on what informed people know.

Also unsupported by author B. She thinks predictive markets reflect majority opinion, which—while not a reliable predictor of anything—isn’t necessarily random and upredictable.

They are easily ███████████ ███ ████ ███████ ██ ██████ ████ ██████ ██████████

Unsupported by author A. He says markets reflect inside knowledge, not that they’re manipulated.

Also unsupported by author B. She doesn’t discuss inside knowledge.

They are affected ██ ███ ███████████ ██ ██ ███████ ████████ ██████████

Strongly supported by author A.

Also strongly supported by author B.

88%

They are no ██████ ██ ██████████ █████████ ████ ████ █████ ████

Author A would disagree.

Author B would also disagree.

PrepTest 157 - Section 4 - Passage 2 - Question 10

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