Prediction markets (also known as predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Republican) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter.

Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker. People who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. Evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.

Many prediction markets are open to the public. Betfair is the world's biggest prediction exchange, with around $28 billion traded in 2007. Intrade is a for-profit company with a large variety of contracts not including sports.

The Iowa Electronic Markets is an academic market examining elections where positions are limited to $500. The simExchange, Hollywood Stock Exchange, NewsFutures, the Popular Science Predictions Exchange, Hubdub, The Industry Standard's technology industry prediction market, the Foresight Exchange Prediction Market and the Brazilian Mercado de Previsões are virtual prediction markets where purchases are made with virtual money. Bet2Give is a charity prediction market where real money is traded but ultimately all winnings are donated to the charity of the winner's choice.

Similar to 0 things you like: