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|‣||What Are Prediction Markets?|
|‣||How Do Prediction Markets Function|
|‣||Predictions Markets Vs. Sports Betting|
Many people often lump prediction markets and sports betting into the same category. When you think about it, it isn’t absurd to do so.
Both sports betting and prediction markets heavily rely on one’s foresight, and real money is on the line in both situations. Essentially, the more accurate your future predictions are in both, the more money you stand to make.
Plus, the fact that prediction markets also go by the name betting markets makes it even harder to justify why the two aren’t the same.
However, prediction markets have key distinctions that set them apart from sportsbooks. Those key differences from the focus of this guide, so read on to find out more about prediction markets.
Prediction markets help professionals in many different fields like economists, analysts, students, and just about anyone interested in public affairs.
Some of the major pros of prediction markets include the following:
A few major cons that prediction markets have include the following:
Prediction markets are different from sports betting, though both utilize similar principles. You can choose to go for either one, but your situation will always guide you on which one to choose.
Either way, just know the core difference between both so that you have a clue of what to expect before jumping in.
Prediction markets are simply what they sound like. These are markets that solely focus on trading the results and outcomes of specific events, hence the term prediction.
Prediction markets fall into the category of exchange-traded markets because traders interact and trade with each other in a decentralized manner rather than trading with one large corporation.
Prediction markets are mostly tied to political events, and that’s why they can also go by the name political betting markets. However, prediction markets can also focus on other types of events and outcomes, such as economic events.
Other common names that prediction markets go by are predictive markets and decision markets. PredictIt is popularly known as one of the top prediction markets.
Prices in prediction markets are a great gauge of the probability of an occasion. This is because these market prices tend to show what the majority of people think will happen, and probability can sometimes be derived from such a perception.
Shares in this market are bought and sold by traders between 0% and 100%, though the return is always either 0% or 100% of the share’s value; traders get nothing in between. So if you get a prediction wrong, you end up with 0%.
However, if you end up making an accurate prediction, you get 100%.
One thing that stops people from venturing into prediction markets is the fear of thinking that prediction markets are complicated. It may seem that way, but when you dig deep, you’ll realize that they function in a straightforward, easy way.
The following example will simplify everything:
Candidate’s A chances of getting into office are being traded at $0.73—maximum is $0.99. The other candidates account for the deficit, which is $0.26 in this scenario ($0.99-$0.73=$0.26).
Those prices show that candidate A is more than a strong favorite, possibly because many believe that candidate A will win. So in this scenario, candidate A’s price, $0.73, translates to a probability of 73% of them getting into office.
So if you wish to back the prediction that candidate A will win, you’ll need to purchase shares. If candidate A wins, you get $0.73 for each share that you bought. However, if any other candidate wins that election, you get nothing for your investment.
Just like sports betting, you can always hedge your bets by investing in a different option at any time before an event has been settled. Alternatively, you can also choose to trade your current shares.
So, in the above example, let’s say that a scandal surfaces regarding candidate A. This scandal changes your perception, so you decide to back another candidate by investing in different candidates’ shares.
You can also sell your shares at any time, though the value at the time of selling will have changed based on the most recent information.
Apart from the similarity that prediction markets and betting sites both involve bets being taken, prediction sites are vastly different from online betting sites.
When you place a sports bet, you do so at a bookie who has decided the odds of an event and calculated the probability for themselves based on their criteria. Essentially, there is no free market.
On the other hand, prediction markets function in the same way that stock markets do. You trade money and shares with other traders, not with one entity.
So if you see that a share is listed for $0.30 and you want to get it at $0.26, you can search for traders who are willing to match your maximum price.
Prediction markets also avoid being termed betting sites by registering as futures markets instead of a betting provider. This allows them to focus on political predictions and other world affairs.
Plus, prediction markets work hand in hand with universities because their data is instrumental in academic research.
Prediction markets focus on the future and aim to be as accurate as possible to help current and future generations. This is why you’ll note that many prediction markets are created by academics who have the core goal of conducting research instead of financial gain.
Gathering knowledge from people from all walks of life helps such research. This is better than having a group of people who think and function in the same way, meaning that they all believe in the same outcomes and possibilities.
If everyone believes in the same outcome and there is no one to challenge that, wrong predictions are bound to be plenty.
Prediction markets and sports betting may have different goals, but both do have certain similarities. These a few similarities to expect if you wish to partake in both activities:
Anything that involves betting has risk tied to it by default. Both sports betting and prediction markets venture into the unknown, so any money placed has no guarantee of ever returning.
If there was no aspect of uncertainty, then there would be no risk at all. That, however, would diminish the purposes of both sports betting and prediction markets.
It’s dumb to place a prediction without doing any research; it’s even dumber to expect something in return when all you’re doing is just guessing.
Prediction markets and sports betting both heavily rely on the information. Essentially, if you have a lot of information about a particular subject, it becomes easier to make a calculated prediction.
You can’t write off a presidential candidate without seeing how they poll in battleground states. Similarly, you can’t say that a certain NFL team will win the Super Bowl without analyzing that team’s matches.
Information is one of those things that can’t be exhausted. So always try to get as much info about something before making a prediction.
Emotions are deceptive and will blind you if you use them in sports betting and prediction markets. Biases can make you think that a disliked candidate will flop in an electoral race, though the polls might say something different.
The same is true with sports betting. It’s always hard admitting that your favorite team isn’t as good as you rate them.
However, if you want to be as accurate as possible in both fields, you need to let objectivity lead the way and avoid any biases that can mislead you.
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