Prediction Markets
“The constant drone of cheap and tuneless plastic horns is killing the atmosphere at the World Cup.
Where are loud choruses of “Oooohhhs” from enthralled crowds when a shot scorches just wide of the goalpost? And the sharp communal intake of breath, the shrill “Aaahhhhss,” when a goalkeeper makes an acrobatic, match-winning save? Or the humorous/moving/offensive football chants and songs?
Mostly, they’re being drowned out by the unrelenting water-torture beehive hummmmmmmmmmm of South African vuvuzela trumpets. Damn them. They are stripping World Cup 2010 of football’s aural artistry.” – Baker city herald.
It’s only up to you to deside who will win. But you can rate of pay ! it must be done at once! But how?
The fundamental concept behind Prediction Markets suggests that markets can solve information problems. Related, the efficient market hypothesis posits that prices always reflect all available information. A competitive market achieves market efficiency through the price mechanism, the most efficient instrument for aggregating asymmetrically dispersed information possessed by market participants. Therefore, prices in a competitive market offer an aggregate reflection of all participants’ public and private information and thus serve as a good predictor.
As a result, markets possess the positive characteristics of information elicitation and aggregation, immediate reaction
to new information and scalability with respect to the number of participants. These characteristics make them a potentially promising method for solving information problems.
In the various PMs for sporting events, participants trade virtual stocks related to future market situations, namely, the outcomes of sporting events. The cash dividend (payoff) of these shares of virtual stocks depends on the actual outcome of the event; therefore, the price of one share of a virtual stock should correspond to the Prediction Markets’s aggregate expectation of the event outcome and, in turn, the (discounted) expected cash dividend of a share of stock.
Participants in the Prediction Markets use their (individual) expectations of the outcome to derive an (individual) xpectation of the cash dividend of the related share of virtual stock. Accordingly, they compare their expected cash dividend with the Prediction Markets’s aggregate expectation, which is a function of the stock price, as a means to trade their individual expectations.
If the potential gains in the virtual portfolio value create a sufficiently high incentive for participants to perform well in the Prediction Markets, it becomes their best strategy to engage in transactions on the basis of their best individual expectations. Thus, the participants reveal their true expectations of future market situations through their buying and selling activities.
