The best way to make money in a prediction market is to be able to predict the outcome of the predictions.
I don't think this says quite what you meant. :-) As it stands, it can be read as saying that you can make money by predicting what other people believe, which is in agreement with the parent's #3. (And which is also true--as I noted just upthread, the author of the article in the OP did exactly that by buying and then selling McCain bets for the 2008 election.)
This is a pointless nit pick, but two can play at that game.
The outcome of the predictions is that all the correct predictions resolve to 1 (or 100% or what have you) and all the incorrect predictions resolve to 0.
Technically, I said what I wanted to say. Technical correctness is the best kind of correctness. ;)
I don't think this says quite what you meant. :-) As it stands, it can be read as saying that you can make money by predicting what other people believe, which is in agreement with the parent's #3. (And which is also true--as I noted just upthread, the author of the article in the OP did exactly that by buying and then selling McCain bets for the 2008 election.)