Prediction markets are indeed a good mixture of betting with a bookie and trading stocks. They are frequently referred to as “betting forums,” where gamblers place wagers on their ability to forecast big forthcoming events, such as which party will hold the Senate in November 2018 or who will be the Democratic Party nominee in 2020.
That being said, while betting on OKbet within a prediction market isn’t the same as placing a conventional bet at a sportsbook, they’re definitely betting-adjacent with real money being on the line and they are a tremendous tool for gleaning insight into how you can profit from predicting the future.
Whether you’re wondering what distinguishes prediction markets from sportsbooks like OKbet sportsbook, we’ve got you covered! Prediction markets are complicated in practice, yet they are a time-tested mechanism for correctly predicting the future. Continue reading to learn more about how they function, their benefits, limitations, and origins.
What Exactly Are Prediction Markets?
Prediction markets are “exchange-traded markets,” of which numerous iterations exist within the traditional stock market. A decentralized forum where users purchase, sell, and trade shares is known as an exchange-traded market.
Prediction markets, unlike the stock market, only trade in the outcomes of events, usually related to politics or economics, and prices reflect a specified likelihood of a specific event. A prediction market share will always trade between 0% and 100% of its value and will always expire at 0% or 100% of its value. This means that if participants correctly predict the occurrence, they will receive nothing. If they get it properly, they get the entire deal.
How Do Prediction Markets Function?
Prediction markets may appear and sound perplexing at first glance, but they are surprisingly simple in practice.
Consider the following hypothetical scenario. Assume you wish to place a wager in a prediction market on whether Donald Trump will be the Republican nominee for President in 2020. On prediction.org on October 24th, Trump’s chances of being nominated were trading at $0.68 (of of a possible $0.99). The additional $0.31 is accounted for by other options (Mike Pence was the second most likely, priced at $0.11). According to the odds, Trump was a heavy favorite to be the nominee in 2020 at the time.
You’d have to buy shares in order to make a forecast on Trump’s potential candidacy. The price at which people are willing to buy or sell a share represents the probability that the outcome will occur. If the market price of a share remains at $0.68, the market predicts that Trump will be the nominee 68% of the time.
In our case, shares ranged from $0.01 to $0.99. If Trump is chosen as the nominee, individuals who own yes shares will receive $1. Those who do not own any shares would receive nothing.
Share prices do not have to be between $0.01 and $0.99, but they must fall between 0 and 100 in some way (e.g., $1-$99) to reflect a chance between 0% and 100%.
As previously stated, when the outcome of the relevant event is determined, shares in prediction markets become binary. They are ultimately worth 0% or 100%. However, market participants can purchase and sell shares at any time between 0 and 100. The value of an event’s shares fluctuates over time as new information becomes available and shares are bought and sold. What you are willing to buy/sell at will be determined by your level of confidence in your prediction.
The True Purpose of Prediction Markets
One way to conceive of prediction markets is as a massive experiment meant to help individuals anticipate the future more accurately. They are frequently developed and run by academics for research objectives (not profit).
The core premise driving prediction markets is that collective wisdom is more valuable than individual information, regardless of level of competence. In its most basic form, crowd wisdom is information that originates from the collective opinion of a group of people rather than the knowledge of a single expert. Its roots can be seen in Aristotle’s Politics, where he proposed that communal judgment was more powerful than individual judgment.
Through their free-market mechanism, prediction markets act to aggregate a wide range of knowledge, beliefs, and data by involving a diverse range of people with access to varied information. In essence, they generate market prices that are a direct reflection of what the collective, or crowd, believes.
The Beginnings of Prediction Markets
So according economists Paul W. Rhode and Koleman S. Strumpf, prediction markets date back to 1884, when a group of Wall Street dealers established a prediction market based on whether Grover Cleveland or James G. Blaine would be elected president.
Considering their historical connections to elections, it’s no surprise that prediction markets continue to prioritize political events. Given the similarities between their underlying theory and structure and the science of economics, many prediction markets (particularly after 1945) developed to encompass economically relevant events as well (i.e. whether an international trade deal will be ratified, or if tariffs will be levied or rescinded).
Nowadays, prediction markets are big business!
Betting markets are big business these days. According to one Financial Times investigation, the average betting turnover for a US presidential election in the twentieth and twenty-first centuries is roughly 50% of total campaign spending across all parties. For reference, the 2016 presidential campaign was projected to have spent $2.4 billion in total.
Prediction markets have risen dramatically in relevance and reach as a result of the massive digitization of both banking and betting. Many data-driven media sites, such as FiveThirtyEight, routinely cite them.
Why Prediction Markets Aren’t Run Like a Sportsbook
The distinction between prediction markets and traditional gambling is obvious. When you bet on a football game, you are giving your money to a bookmaker, who will accept the wager at fixed odds. It is not a free market since the bookmaker sets the odds and hence determines the implied chance of that event occurring.
To learn more about predictions, betting tips, and OKbet Sportsbook you can go to the OKbet website or directly at Okbet.com.
