Prediction Market

The term “prediction market” sounds all fancy and official, but really, it’s just a group of people getting together and speculating about and betting on future events.

Okay, maybe it’s a little more official than that. These aren’t randos who just start talking at a bar one night and end up executing financial trades together. They’re actual, defined groups dedicated solely to making and advising on trades based on event outcomes, and when we say “event outcomes,” we’re talking everything from election results to real estate prices to corn yields in Illinois. They use historical data, crowdsourcing, and predictive analytics to draw their conclusions. Maybe we’ve seen prediction markets go by one of their many other names, such as event derivatives, information markets, or virtual markets, to name a few.

If getting into the whole precision market racket sound like a fun alternative to another D&D game, take heed: gambling is still largely illegal throughout the United States. Yes, there are exceptions, but for the most part, prediction markets aren’t one of them. That’s why the actual prediction market itself will usually use fake money for its trades, or, in a few cases, it’ll get a special permit to operate, which is the case with certain university-sponsored prediction markets like those at Victoria University of Wellington and the University of Iowa.

By and large, prediction markets are used more for speculation than for actual trades. So if, for example, our fave prediction market speculates that the real estate market in Florida is going to go bust next year, we are free to invest and/or make trades accordingly, but the prediction market itself can’t do anything to make it look like they’re sponsoring or advocating illegal gambling.