Prediction Markets and Sports Betting Aren't as Different as You Imagine

IKEJA, Nigeria - Jan. 26, 2023 - PRLog -- Prediction markets are a unique hybrid between betting with a bookie and playing the stock market. They're often referred to as "betting forums," where gamblers lay wagers tied to their ability to predict major upcoming events, such as which party will hold the Senate in November 2018 or who will be the Democratic Party nominee in 2020.

What Are Prediction Markets, Exactly?

In more technical terms, prediction markets are "exchange-traded markets," of which much iteration exists within the conventional stock market. An exchange-traded market is a decentralized forum where participants buy, sell, and trade shares with one another. Prediction markets only trade in the outcomes of events, usually related to politics or economics, and prices reflect a designated probability of a particular event. A prediction market share will always trade between 0% and 100%, and they always expire at 0% or 100% of their value. This means that if participants predict the event incorrectly, they get nothing. If they get it right, they receive 100% of the contract.

The Real Reason Why Prediction Markets Exist

One way to think of prediction markets is as a giant experiment, designed to help people predict the future with a higher degree of accuracy. They are often established and operated by academics for research purposes (not profit). The central idea underlying prediction markets is that the wisdom of the crowd is more valuable than the knowledge of any one person, regardless of their level of expertise. In the simplest terms, the wisdom of the crowd is the knowledge that emerges from the collective opinion of a group of people, instead of the knowledge of a single expert.

Why Prediction Markets Aren't a Sportsbook-Style Operation

The difference between prediction markets and traditional gambling is straightforward. When you bet on a football game, you're handing your cash over to a bookmaker, who offers to take the bet at fixed odds. It isn't a free market, as the bookmaker is the one who sets the odds and subsequently determines the implied probability of that event taking place.

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