What is Prediction Market?

A prediction market is a system that focuses on speculating on the results of occurrences in a variety of businesses. In contrast to traditional markets, where individuals anticipate the price of an item, predictions allow users to bet on the result of a variety of events such as sports events, election results, and contest results. 

Recently, prediction markets have seen ludicrous forecasts such as "the color of the dress during a US presidential speech" or even "the number of coronavirus infections."

The majority of today’s prediction markets utilize blockchain technology to provide several sorts of bonuses to instigate individuals to bet on predictions. Overall, a few of these methods are practiced:

• The earlier the individual predicts, when there isn’t a sufficient amount of information around, the higher his time weight will be in the calculation of his winnings;
• The closer an individual's forecasts are to the actual event, the higher his reputation score, and the greater the influence his future predictions will have on his wins;
• The farther the individual's forecasts deviate from "common wisdom," the bigger the payoff if his predictions are true.

Nevertheless, there are also some prediction markets out there that utilize the parimutuel system where all punters support potential predictions and put their forecasts into a pool. The winning prediction occupies the whole pool of bets and distributes it across punters equally to their share of the winning stake. In this case, the organizer receives a modest percentage of the pot.

Prediction markets depend on large sample sizes due to the necessity to assess the forecasts of many individuals. As a result, the more individuals who take part, the more data they possess and the more precise they are.