It’s not just about the money: What do the prediction markets teach us?

3 min readJun 30, 2022

Event prediction is defined as the act of risking something, usually money, for potential reward by attempting to predict the outcome of an event. Although it is a game of risk and reward, predictions offer much more than the possibility of financial gain.

Understanding how we deal with uncertainty

Among the most interesting things we get from the forecast market is a better understanding of how people deal with the unknown. There are many aspects of life you can never be sure about; will it rain today? Will I be late for work because of traffic? Although we are faced with these questions on a daily basis, we rarely take the time to understand why we make our decisions. For the person involved in forecasting, everything changes.

It doesn’t matter if he decides whether to pick up an umbrella, leave for work ten minutes early to avoid traffic, or make a prediction that Manchester United will beat Chelsea. In all of these examples, we are dealing with incomplete knowledge. However, for most people, only one of these three options will require more than a few seconds of thought.

Getting caught in the rain without an umbrella and being late for work are two risks, but they don’t seem to carry the same weight as the money we might get for a correct forecast. More tangible risk in the form of money allows the forecast markets to give us a greater sense of the significance of our choices and, therefore, allows us to better understand how we deal with the uncertainties in life.

An insightful look at the past

An important part of making predictions for those who are serious about it is recording their actions and trying to learn from past events. However, this is usually in the context of trying to improve decision-making for the next prediction.

Regardless of whether or not your prediction met the mathematical expectation, the purpose of looking back is still to serve future actions.

Prediction markets also offer the opportunity to look back on individual events and analyze how impressive the achievement was or how big a shock the outcome was. Given that chance is simply a representation of probability, we can use prediction markets to understand how likely or unlikely something really was.

A clearer picture of what the future holds

Prediction markets can also help us look into the future. While it is fun to use prediction markets to assess the likelihood of success or failure of sports teams, they can tell us much more. About more important things than who will win the championship.

What do the prediction markets tell us?

Prediction markets exist because people invest money to try to make more money. While it is worth spending your time and money to try to make a profit, it can also be interesting to look at predictions from a different angle. They help us understand how people think and behave, and allow us to take an astute look at the past and predict the future.

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