In this guide
The financial world refers to them as "information markets." Those who trade them call them "prediction markets." Silicon Valley and tech circles favour the term "futarchy." Despite the varied nomenclature, all three point to an identical concept: a marketplace that harnesses financial rewards to consolidate scattered individual knowledge into a collective probability assessment.
The Core Insight: Prices Carry Information
Friedrich Hayek's seminal 1945 work "The Use of Knowledge in Society" demonstrated that price mechanisms address the central challenge of pooling information distributed across many independent actors. Prediction markets extend this principle to uncertain future occurrences: a YES share's market value synthesises the combined understanding of every participant regarding that event's likelihood.
Each participant in a prediction market possesses some exclusive insight: a political analyst understands polling methodologies, a football bettor tracks team injuries and form, a researcher grasps experimental progress. Through their trading decisions, they encode that exclusive knowledge into the price. The resulting market price becomes a transparent indicator encompassing information no individual participant could possess in isolation.
Applications Beyond Trading
Information markets have been trialled and implemented across numerous domains:
- Corporate decision-making: Organisations establish internal prediction markets where staff wager on product performance outcomes
- Scientific forecasting: Markets predicting whether research findings will replicate successfully
- Policy evaluation: Robin Hanson's "futarchy" framework — employing prediction markets to assess proposed government policies
- Intelligence community: The CIA's Analysis of Competing Hypotheses initiative incorporated market-based methodologies
- Supply chain management: Hewlett-Packard deployed internal prediction markets to improve sales projections
Prediction Markets vs Expert Panels
Conventional forecasting depends on specialist committees who synthesise perspectives via deliberation and agreement. Information markets present several structural benefits:
- Anonymity eliminates social pressure: Specialists frequently conform to prevailing opinion; market participants incur no social penalty for heterodox positions
- Continuous updating: Market valuations shift in real time; specialist committees gather infrequently
- Financial incentive: Accurate forecasters earn returns; accurate panellists seldom receive tangible compensation
- No chairperson effect: The organisation's highest-ranking specialist cannot steer collective judgment toward their personal assessment
Trade Information Markets on PolyGram
PolyGram operates hundreds of information markets where your domain expertise provides a tangible advantage. Browse active markets organised by subject area to discover opportunities matching your knowledge base.
FAQ
- Are prediction markets the same as information markets?
- Absolutely — "information market," "prediction market," "idea futures," and "event contract" are employed synonymously throughout the industry. Each terminology refers to the identical mechanism of exchanging contracts tied to future event outcomes.
- Who invented prediction markets?
- Robin Hanson at George Mason University established the majority of theoretical groundwork during the 1990s. The Iowa Electronic Markets, launched in 1988, represented the first significant real-world application.
- Can prediction markets be manipulated?
- Temporary price distortion remains feasible but requires substantial capital to maintain. Academic research demonstrates that actors attempting price manipulation eventually lose funds as knowledgeable traders restore accurate valuations. Well-established, high-volume markets demonstrate considerable resilience against such attempts.