A while ago, I wrote about the dangers of 'recursive' markets: imagine a betting market that quantifies someone's trustworthiness. Now imagine a dispute that gets resolved by comparing someone's trustworthiness numbers. And now imagine how the results of that dispute affect the market. Suddenly, having a low trust-metric lowers one's trust metric, and vice-versa, to the point that noisy markets or a large bid-ask spread can turn someone into a presumed liar just because past market moves correlate with future changes in market fundamentals.
It happened. There's a rumor that a major presidential candidate has done something sexually scandalous (Dennis Mangan wonders what it could possibly be). James Miller suggests that it's Obama, because his estimated odds of winning are lower than one would expect. In other words, a partial reputation futures market is being used to determine a candidate's actual reputation: Obama must be doing poorly in real life because he's doing poorly in the market -- thus he should do worse (and thus, and thus, etc.).
Prediction markets are strange: they make market inefficiencies more efficient.