If there was a way to see into the future, we could start planning for outcomes of events that haven’t happened yet. Wouldn’t that be great for people, businesses… even the world? What if we told you there was a way to predict (with high accuracy) the outcomes of future events? 

Don’t get too excited; time travel hasn’t been invented yet. The DeLorean is still just a car. What we’re talking about here are prediction markets. 

What are prediction markets? 

Great question. Prediction markets (or future markets) are where participants trade contracts with payouts that are dependent on the outcome of an event not yet occurred. Essentially, people are making bets on hypotheticals. 

Sound risky? Sure. These predictions aren’t just shots in the dark, though. They’re based on real data gathered from market research insights. 

How does it work? 

Let’s look at presidential elections as an example. 

If a contract is structured to pay $1 for a correct outcome and $0 for an incorrect outcome, and a participant in the prediction market trades Candidate X winning for $0.70, the probability of Candidate X winning the election is 70%. The person making the trade deal chose $0.70 as an amount based on behavioral data gathered prior to creating the contract. 

(It’s important to note that unlike psychologists who make predictions based on self-reported beliefs and preferences, economists are more likely to measure outcomes based on behaviors.) 

Say Candidate X does win the presidential election. The participant that purchased the contract will be awarded $1. As more and more participants purchase contracts (in this case) for the future presidential election, prices will fluctuate based on market conditions and new information gathered. 

Is it like gambling? 

Not exactly. It’s different from gambling, because the outcome of the deal becomes more predictable over time. Since the payout depends on the accuracy of the prediction, participants tend to put more effort into arriving at the most accurate conclusion. 

Prediction markets rely on collective thought and information from a group of people, not just one person’s roll of the dice. 

Are prediction markets always correct? 

Prediction markets don’t always forecast accurately. We saw this happen in the 2016 US presidential election when the markets predicted Donald Trump had a 35% chance of winning. The election was a massive event with numerous bets; the market should have been more reflective of the actual outcome. 

How can we make them more accurate? 

Hard work and dedication. Outside of that, a new study suggests combining prediction markets with weighted polls for groups of people that have a proven track record of accurate predictions. An easier way, though, would be using technology that aggregates data for forecasting. 

Aggregating Customer Data with Fuel Cycle 

Prediction markets are important as we look ahead and plan for the future. Remember that the projected outcome doesn’t always occur, but with more participants and data collected, the prediction will likely be more accurate. 

If your organization needs a way to look at large amounts of data in a simple, easy-to-use technology that will help predict a better future, reach out to learn more about Fuel Cycle.