Prediction Markets 101
A prediction market is a place where people trade on the probability of future events. Instead of just stating an opinion, participants put something at stake, which creates a powerful incentive to be accurate rather than just confident.
The core mechanic is simple: each possible outcome has a price between 0 and 1, representing its implied probability. If you think an event is more likely than the market believes, you buy shares of that outcome. If you’re right, each share pays out 1 unit. If you’re wrong, it pays out nothing.
This structure aggregates information efficiently. People with genuine knowledge or insight are rewarded for acting on it, which pulls prices toward the true probability over time. Prediction markets have consistently outperformed polls, expert panels, and traditional forecasting methods across domains from politics to science to finance.
On Precog, this mechanism runs fully onchain using an LS-LMSR pricing curve, an algorithm that sets prices automatically based on trading activity, without requiring an order book or a counterparty.