What is Prediction Market?

Prediction markets are platforms or exchanges where individuals can buy and sell contracts based on the outcomes of future events. The prices of these contracts reflect the collective belief or probability of those outcomes occurring. For example, a prediction market can be set up to forecast the outcome of an election, the winner of a sports tournament, or the future price of a commodity.

In a prediction market, participants buy contracts they believe are undervalued or sell contracts they think are overvalued. The price of each contract typically ranges from 0 to 1, representing the probability of the event happening. For instance, if a contract is trading at 0.70, it means the market believes there is a 70% chance the event will occur. When the event's outcome is determined, the contracts are settled: the contract representing the actual outcome will be paid in full value, while other contracts become worthless.

Prediction markets have many benefits, such as efficiently aggregating information from diverse individuals and often providing more accurate forecasts than traditional methods like opinion polls. Furthermore, participants have financial incentives to provide accurate information, as their profits depend on the accuracy of their predictions. Prediction markets can be widely applied in various fields such as politics, sports, economics, and even in internal decision-making within companies.