What is a Prediction Market

A prediction market is not so different from trading on the stock market, and based on the principle of "wisdom of the crowd".

"Wisdom of the crowd" dictates that the collective opinion of a group of individuals is almost always far more accurate than that of a single expert.

Just like stock markets, people pool resources into one item and bet that their opinion is correct in forecasting the future. While in stock markets, the most common bet is whether the stock will go up or down in the short term or long term, prediction markets only trade in the outcome of events and the prices reflect a designated probability of a particular event.

The market prices change based on the interest in a particular option over the others. These markets can, thus, indicate what the crowd thinks the probability of a particular outcome is.

The primary purpose of prediction markets is to collect crowdsourced beliefs about an unknown future event . This is what makes prediction markets so interesting (and fun!) as it not only gamifies information, but also reflects the sentiment of the public over time. In essence, FansPredict also becomes a database that collects opinions of fans over all kinds of events.

For Example...

Let’s look at a hypothetical example.

Say you want to make a bet in a prediction market on whether Donald Trump will be the Republican candidate for President in the 2020 election. On predicit.org circa Oct. 24th, Trump’s chances of being nominated were trading for $0.68 (of a maximum $0.99). The alternative choices (Mike Pence was the second most likely, trading at $0.11) account for the other $0.31. The prices indicate that Trump was a heavy favorite to be the nominee in 2020 at the time.

In order to make your prediction on Trump’s prospective candidacy, you’d have to buy shares. The price that people are willing to either buy or sell a share amounts to the probability the market has assigned to the outcome occurring. If the market price for a share stays at $0.68, that means the probability of Trump being the nominee is 68% according to the market.

In our example, shares traded between $0.01-$0.99. If Trump ends up being the nominee, those holding yes shares will receive $1. Those holding no shares would receive $0.

Prices of shares don’t necessarily have to be between $0.01 and $0.99, but they must fall between 0 and 100 in some fashion (e.g., $1-$99) as they must reflect a probability between 0% and 100%.

As mentioned, shares in prediction markets become binary when the outcome of the relevant event is determined. They wind up being worth 0% or 100%. However, at any point, market participants can buy/sell shares at any price between 0 and 100. The value of shares in an event fluctuate over time, as new information comes to light and shares are bought and sold. What you are willing to buy/sell at will depend on how confident you are in your prediction.

(example courtesy of this article from Aaron Gray)

Is this gambling?

Prediction Markets are not defined as gambling as they operate much like trading stock futures.

FansPredict is not a form of legal gambling.

Prediction Markets on Blockchain?

The reason we believe Prediction Markets on blockchain can bring a player-first experience is because of what blockchain technology offers: transparency and authenticity of transactions. Unlike existing prediction markets, any and all transactions for predictions, payouts and pools are on the blockchain and accessible by anyone.

FansPredict can currently be played on BNB Chain.