I have two predictions at the moment:
- It is more than likely that you found that article totally by coincidence.
- You have doubts on what actually is ‘prediction market’ in itself.
Am I correct with at least one of these? Well, if not, then my prediction successfully failed. If yes — good for me:) It changes nothing and in the meantime I will try my best to elaborate on the basics of the prediction market idea and what stands behind it, so the following reading minutes would be not only useful, but interesting as well!
STEREOTYPES
Gambling? Betting? These are the mostly used terms when one starts its investigation on the story of the prediction market. Indeed, not for nothing this threshold might be blurred to some extent, however these are pretty much different actions. The only similarity is all of the mentioned terms might have a relation to a game. A game with a prediction.
THE DIFFERENCE
There is a definite divergence between pure gambling market and a prediction markets. In plain English, prediction markets let people ‘bet’ on a specific feature within different domains (economics, politics etc.), thus and so creating a new financial derivative. There is a bunch of criteria that are necessary for a prediction market to take off, most of which may be found in a Bloomberg article:
- general enough to attract widespread interest;
- important enough to matter;
- unusual enough not to be replicable by trading in existing assets.
So there always will be a room for another prediction ideas. Market for climate outcomes? Yep, why not. Number of startups in Kenya? Sounds good to me.
WHY MAY IT BE USEFUL PAYING ATTENTION TO THE PREDICTION MARKET?
Among other reasons, there is chance to use results of each prediction for your own purposes, since even imperfect forecasts may be useful. Say, hearing there is 70–80% chance that we will have a heavy snow-rain tomorrow might make you reconsider your plans. However we must do our own researches each, since prediction markets have also had some high-profile misfires, e.g. prediction markets lagged well behind conventional polls in predicting that Donald Trump would become the 2016 Republican nominee for US president.
WHERE IS ZEITGEIST IN THAT STORY?
Zeitgeist is an evolving blockchain for prediction markets and futarchy. How does it work? Let’s make it this way and quote an official website:
- traders, whom each hold different views and information regarding the variable in question will take position in the market by buying market shares.
- After the conclusion of the event, the designated oracle will report the outcome of the question to Zeitgeist.
- If any participant sees that the designated oracle reported incorrectly, they may start a dispute of the market by challenging it in a decentralized court.
- Once the market outcome is finalized, traders who took the correct position in the market can exchange their shares for 1 ZTG. Traders who took the wrong position will have shares that are worth nothing.
So people are the source of every prediction. People and their objective and subjective opinions. As Anna Dreber said, it is a great way to mix science with gambling and that’s what I like about it.
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