Prediction markets use share prices to reflect event probabilities

Prediction markets function as trading venues where participants buy and sell shares tied to the outcomes of real-world events, such as elections or economic decisions. A share typically pays $1 if the event occurs and $0 if it does not, meaning the market price serves as a crowd-sourced implied probability. For example, a share priced at 60 cents suggests a 60 percent chance of the event happening.

Discrepancies between different markets on the same event can occur due to variations in participant demographics, liquidity, fees, and settlement rules. Such divergences can serve as signals regarding market uncertainty or low liquidity rather than indicating that one market is incorrect.

Major platforms including Kalshi and Polymarket have seen significant activity, with combined trading volumes for certain periods reaching tens of billions of dollars. While liquid markets have historically demonstrated strong forecasting capabilities, often outperforming polls, thin markets may be more susceptible to noise.