Prediction markets: Difference between revisions
Added comparisons to prediction aggregators like Metaculus and added more examples of prediction markets.
(Created page with "Prediction markets buy and sell contracts that pay off (typically $1) if the pre-determined event happens. Under certain conditions, the equilibrium price of a contract can be understood at the consensus probability about the event happening, namely if the no-arbitrage principle applies. PredictIt Polymarket") |
(Added comparisons to prediction aggregators like Metaculus and added more examples of prediction markets.) |
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Prediction markets are markets where users can buy and sell contracts that pay
=== Interpretation of prices as probabilities ===
Under certain conditions, the equilibrium price of a contract can be understood at the consensus probability about the event happening, namely if the [[no-arbitrage principle]] applies.
=== Comparison to prediction aggregators ===
Prediction aggregators usually encourage everyone to submit their best guess by making it more likely to earn reputation points than lose them. Ideal prediction markets (no withdrawal/trading fees, high liquidity), in contrast,
* only encourage trading and thus changing the (market implied) probability for users who disagree with the market consensus,
[[PredictIt]]▼
* allow users to express higher order beliefs, i.e. how confident they are in the market being wrong, by betting varying amounts of money,
* are more consistent, e.g. for two questions A, B where A implies B, the price (and hence the market implied probability) of B must be higher than that of A due to arbitrage.
** In the same example, prediction aggregators could assign a higher probability to A than to B, even if all users are perfectly rational, if different subsets of users predict on A and on B; in particular a few users noting the inconsistency cannot change it unless their predictions are weighed disproportionately to the other users'.
=== Examples ===
[[Polymarket]]▼
==== Real-money prediction markets ====
▲* [[PredictIt]]
▲* [[Polymarket]]
* Augur
* Insight Prediction
* Kalshi
==== Play-money prediction markets ====
* Manifold Markets
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