Are prediction markets good at providing a true measure of probability?
Crowd theory says yes, business interests may complicate things.
How is accuracy obtained?
Well of course the answer is obvious – if you want an accurate measure of probability look at the fundamentals for yourself and then ask a lot of people for their opinion. If you encourage the participants to put either reputation and/or money at risk their prediction skills get better. If you provide a platform where systems can participate as well as individuals then not only is the best assessment of probability obtained but it becomes highly dynamic and shifts with every small change in the underlying markets/world conditions.
Sounds complicated, but what does this mean for a business?
Well, simply build an exchange that can provide unprecedented capacity and let the world decide what the likelihood is of an event happening.
And who are Tradefair?
Tradefair is Betfair’-s new home for the financial bettor and trader – our binaries exchange product has opened with straightforward traditional financial markets (FTSE up/down) but one of the things that excites us hugely is the inclusion of market types such as Interest Rates. We call these the “-unhedgeables”-, markets that we all have an opinion on, all understand some of the fundamentals but don’-t have the safety net of an underlying market to hedge into. We are starting in a modest way but we firmly believe that the ONLY place that true market sentiment can be measured is on an exchange.
Why does Tradefair care about prediction markets?
Take a look at Betfair today – it has some of the most liquid, volatile and high participation prediction markets in the world. Participation drives the price down and provides fantastic value to our customers. This has allowed us to build a business that we are all really proud of. The Tradefair team believe that by focusing on financial markets, delivering exchange technology that allows mass participation in an accessible, highly available and transparent manner will allow us bring that same value proposition to the financial sector.