This article needs additional citations for verification. Before the era of scientific polling, early forms of prediction markets often existed in the form of best binary options trading platform 2013 oscar betting. One such political bet dates back to 1503, in which people bet on who would be the papal successor. Even then, it was already considered “an old practice”.
One of the first modern electronic prediction markets is the University of Iowa’s Iowa Electronic Markets, introduced during the 1988 US presidential election. Around 1990 at Project Xanadu, Robin Hanson used the first known corporate prediction market. Employees used it in order to bet on, for example, the cold fusion controversy. Ireland allowing real money trading between members on contracts related to a number of different categories including business issues, current events, financial topics, and more. Department of Defense publicized a Policy Analysis Market on their website, and speculated that additional topics for markets might include terrorist attacks. In 2005, scientific monthly journal Nature stated how major pharmaceutical company Eli Lilly and Company used prediction markets to help predict which development drugs might have the best chance of advancing through clinical trials, by using internal markets to forecast outcomes of drug research and development efforts.
Also in 2005, Google Inc announced that it has been using prediction markets to forecast product launch dates, new office openings, and many other things of strategic importance. Other companies such as HP and Microsoft also conduct private markets for statistical forecasts. In October 2007, companies from the United States, Ireland, Austria, Germany, and Denmark formed the Prediction Market Industry Association, tasked with promoting awareness, education, and validation for prediction markets. The current status of the association appears to be defunct. In July 2018, the first decentralized prediction market Augur was launched on the Ethereum blockchain. The ability of the prediction market to aggregate information and make accurate predictions is based on the efficient-market hypothesis, which states that assets prices are fully reflecting all available information.
For instance, existing share prices always include all the relevant related information for the stock market to make accurate predictions. James Surowiecki raises three necessary conditions for collective wisdom: diversity of information, independence of decision, and decentralization of organization. In the case of predictive market, each participant normally has diversified information from others and makes their decision independently. Prediction markets have an advantage over other forms of forecasts due to the following characteristics.