A prediction market is a platform where you can trade on the outcomes of future events, like politics, sports, crypto, or cultural changes. Each market typically offers a binary choice of yes or no. If the predicted event happens the way you think it will, the contract pays out a fixed amount. If it goes the other way, you receive nothing and lose the money you put in. The market price of a contract reflects the collective probability estimate that the event will happen, aggregating diverse opinions through the financial incentives motivating traders.
By trading with real money, it is thought that users reveal their true beliefs and information about the likelihood of outcomes. This aggregation often leads prediction markets to provide more accurate forecasts than individual experts or polls, as prices dynamically adjust to new data and trader actions. Prediction markets function as a form of crowdsourcing, synthesizing dispersed information into consolidated probability insights.