There are a lot of little "gotchas" to remember with this. For instance, each participant must have a vested stake in the outcome that is to be predicted.
Actually, many markets that only use play money still work quite well, the Hollywood Stock Exchange being one prominent example.
An active market could be great with real money, though. I haven't heard any examples of someone making a huge amount of money by trading predictions, but if such a person emerges, the real-money markets would see a very nice spike in interest.
I wonder if these things are more or less susceptible than stock exchanges to people who profit by manipulating outcomes. If the number of people in a position to perform a manipulation is fairly small (and therefore relatively traceable), that danger is avoidable. The pool of potential manipulators gets pretty big, though, with certain types of predictions, like when a person will die. (In other words, someone could kill the target and make a lot of money. Let's call it the democratization of insider trading.)
