For example, consider the following policy questions:
The right market, however, could give us neutral expert estimates on such question! For example, an estimate of the probability that the U.S. will go to war given that Clinton is elected would be given by the market price (or odds) of bets on war, with the bets being called off if Clinton is not elected. And the price of bets on war which are called off if Clinton is elected would estimate the probability of war if Clinton is not elected. The difference between these prices estimates whether war is more or less likely given we elect Clinton, and is directly relevant to the question of whether we should re-elect Clinton.
This same called-off-bet approach can be used with any policy question. For example, prices in a market which traded a stock market basket (such as S&P500 futures) for cash, but which called-off these trades depending on who became the next president, would estimate which current candidate would be best for the stock market (and should be insensitive to who actually wins).
Since it would be expensive to bet wrong in such a market, the market price would be an expensive signal, aggregating and communicating information not easily found in the "cheap-talk" of media commentary, nor easily disentangled from prices in other markets (if it can be found there at all). In fact, I argue that you should have a free-speech right trade in political policy markets.
Note that while the prices in most markets do contain information, some of it at least indirectly policy-relevant, most markets are constructed for other purposes. And in those few markets that are contructed primarily for the information they create, such as the Iowa Electronic Markets, the questions are at best indirectly relevant to specific policy choices. (They bet on who will be elected, not on what would happen then.)
For more information on other uses of such markets, on prototype trials, on current legal barriers, and on publications on the topic, see my Idea Futures page.
Imagine that we created four types of contingent financial assets, each worth money in only one of these states. For example, C&W = "Worth $1 if Clinton and War", NC&NW = "Worth $1 if Not Clinton and Not War", etc. And imagine that we created markets where people could trade these assets.
Then the market price (i.e. asset amount ratio) of trades between assets C&W and the package C = C&W + C&NW would be an estimate of the conditional probability of war, given Clinton being elected. Similarly, the market price of trades between NC&W and NC = NC&W + NC&NW would estimate the probability of war, given that Clinton is not elected.