Monetary betting has been around for thousands of years — covering a wide range of issues from comical and superficial to deeply specialized and serious ones. Most often, those bets occur through an individual consent, but organized platforms such as Prediction Markets (PMs) can take it one step further.
The most popular use-case of PMs is sports-betting, with the participants meticulously studying athletes and teams in an attempt to make an accurate prediction and win some money.
Another industry where PMs are widely popular is finance. In its broadest sense, any market where participants speculating on price changes can be classified as a PM. But the most obvious example of a financial PM is a market for non-deliverable (cash-settled) futures and options. For example, non-deliverable futures for oil are, in fact, a dispute whether its price will exceed a certain level at a given point in time. Neither side needs the real oil, the important thing is to make a correct forecast.
It was always believed that any kind of gambling exploits dubious human feelings, such as greed, recklessness, and the desire for enrichment because of pure chance or talent, which are vices deemed useless to society. Due to this perception, even sports-related PMs are still banned in some countries. Nevertheless, PMs now have a chance to turn “mere gambling” into a very useful tool.
Gambling is a risk, and it’s actually not that common for people to win out of pure luck. In 2005, in his book “On Intelligence,” neurologist and founder of Palm Computing and Handspring, Jeff Hawkins, suggested that intelligence should be considered synonymous with prediction abilities. If we accept this terminology, then PMs in a general sense facilitate a competition of intellects.
Even when it comes to sporting events, bets are not made by chance. Punters are trying to assess whose chances of winning are higher. This requires in-depth knowledge of a particular sport and understanding of the current situation. Therefore, a specialist has more chances of winning. The same applies to disputes on other topics. A physics student who argues whether the Aufbau principle is derived from quantum mechanics, or a simple guy who debates whether Bob can ask out Alice, are both arguing about their respective knowledge areas. In one case, physics and chemistry, and in the other, in psychology and knowledge of the characters of your friends.
Oftentimes, the purpose of these bets is not just to make some money, but rather search for and justify the truth, as well as assess the strength of the opponent’s beliefs. As a rule, the more money a punter is willing to put on the line — the higher their confidence is. A PM can also be called a “truth serum”: financial interest forces people to not just choose a random option and hope for the best, but conduct an actual research and take a deep dive into the topic. This specialty of PMs places them outside the usual boundaries of “traditional gambling games” and significantly increases their social impact. With enough statistics, the results of PM-based forecasts can be used to study real, well-researched public opinion, as well as the capability of citizens to understand the trends and consequences of certain events, thereby contributing to the development of social sciences.