WHAT ARE PREDICTION MARKETS?
• A collection of people speculating on a variety of events
• exchange averages
• election results
• commodity prices
• quarterly sales results
• gross movie earnings
• Mini Wall Streets in which participants buy and sell ‘shares’ in a
future event at a price that reflects their collective wisdom about
the chance of the event happening
• Futures / Binary Options / Two-way Pegs
• Making forecasts about events
• Allow individuals to bet on uncertain future events
• Produce prices that can provide valuable information
• The price of the share is an indication of what all the participants think will be the outcome
• Aggregate information without the biases of traditional forecasting methods – polls or expert opinions
• Opportunity to surface information that otherwise might not be made public for use by academics and
Allow individuals to bet on uncertain future events
Provide valuable information
Aggregation of a wide and diverse pool of knowledge
WHAT ARE PREDICTION MARKETS USED FOR?
• For economists - there's no difference between betting and trading
• “The law” / Regulation
“From what I see of the betting . . . I do not think that Mr. Roosevelt will need my vote. I am sure of his election.”
1904, Andrew Carnegie
PREDICTION MARKETS ≠ BETTING?
InTrade examples (author found PMs to beTHE BEST available source of info):
• Whether the Higgs boson particle would be discovered
• Whether the Patient Protection and Affordable Care Act (Obamacare) would pass
• Whether Lebron James would sign to play for the NewYork Knicks
• Whether Ben Bernanke would be reconfirmed as Fed chair
• WhetherTreasury Secretary Geithner was going to be fired
• Whether Sonia Sotomayor would be confirmed to the Supreme Court
Companies using PMs internally:
• Hewlett-Packard (forecast sales of
printers / computer memory)
• Siemens (delivery of a new product on
• Best Buy (demand for variety of
• General Electric
EXAMPLES OF REAL PREDICTION MARKETS
• Market to IncentivizeActions
• Has a particular event occurred?
• Will a zero-day exploit be discovered in our software?
• Will this legislation pass? (Automated political action committee or PAC)
• Markets for Insurance
• Will this area flood in the next year?
• Will earthquake over 5.0 magnitude occur within 50 miles of this location?
• Will this flight be cancelled?
• Markets for Financial Instruments
• What will this corporation’s Q4 gross revenue be?
• What will the Ether/USD exchange rate be at a future date?” (Stablecoins)
• Markets for Information Sales (sales of insider information and sales of device data)
• Will corporation A acquire corporation B within set time frame?
• What is the speed limit on this road (sensors)?
• Markets for Governance
PREDICTION MARKET USE-CASES
• Moving away from Democratic or Autocratic decision making processes
• Markets decide
• A governance model for DAO-like organizations
Researcher at Oxford's
Future of Humanity
• Efficiently aggregate a variety of information and beliefs
• Create financial incentives for truthful revelations
• Provide incentives for gathering relevant information
• Incorporate new information quickly
• Difficult to manipulate
1. Futarchy fixes the “voter apathy” and
“rational irrationality” problems of democracy
1. A powerful entity can manipulate the market
2. In time they will become better - good
predictors will stay in the system
2. Markets are “self-referential” – not good
aggregators of actual information
3. Reduces potentially irrational social
3. Estimated effect of a single policy on a global
metric may be very small
4. Human values are complex – there might be
much disagreement on the metric to be used
5. PM are zero sum – irrational to participate
(1) making it harder for executives managing the funds to
cheat both the organization and society for their short-
(2) making governance radically open and transparent
ISAAC ASIMOV’S FOUNDATION
• Psychohistory - a fictional science
which combines history, sociology, and
mathematical statistics to make general
predictions about the future behavior of
very large groups of people
• The Seldon Plan
• Statistical in nature
• Events are described as being
• The variables require very large
amount of human beings (in order to
• DPMs allow everyone to use their knowledge in order to profit.These opportunities
have been strongly limited by governmental regulation.
• DPMs redistribute wealth from the less informed (biased, emotional) to the better
informed. Smart people can benefit from the folly of the masses.
• DPMs will be used to supply information to blockchains in a decentralized way,
enabling a myriad of new applications.
• DPMs research and improvement will allow the introduction of improved PoS-based
• DPMs will provide a new, more efficient way to govern blockchain systems.
• DPMs will create information (in the form of questions/answers) that otherwise would
not have existed.
• DPMs, in combination with other sources, could prove to be the best way to make
predictions about the future.