I gave a talk about Prediction Markets at Microsoft Research. In a Prediction Market, experts buy and sell shares of future outcomes and get money if their prediction is correct. For example, suppose you have 12 experts and you want to predict the outcome of a political election between candidates Adams, Baker, and Cogan.
Experts buy and sell shares of the three candidates. After each purchase or sale, the prices of shares of the candidates goes up or down. After the election is held, experts get $1 for every share they hold of the winning candidate.
Just before the election is held, you can determine the probabilities of each of the three candidates winning by using the number of outstanding shares held.
In my talk I explained the math equations used to determine the prices of shares, and the probabilities of outcomes.
There was a lot more interest in the talk than I thought there’d be. The lecture room was full and a couple of hundred people watched a streaming broadcast of the talk too.