👨‍👨‍👦‍👦Prediction Market Actors

We can see prediction markets as three-sided marketplaces comprising of:

• Traders (market takers): Take positions in the outcome of some event. Their motivations can vary and includes:

  • Making money by making correct predictions (most common).

  • Showing support for a particular “team” (common in political and sport markets).

  • Having fun while following some event as they have a stake in it.

  • Edging a particular risk (such as taking positions on catastrophes which would affect them).

• Liquidity providers (market makers): Make some orders to be taken by traders. Want to earn some return on the capital they deploy. Their risk profile may vary, but they generally prefer to stay as neutral as possible in markets and take as few risks as possible. They are interested to participate if their expected risk-adjusted yield (the APR they get discounted by how risky providing liquidity is) is higher than alternatives.

• Information seekers: We introduce this group of actors which were often overlooked by other prediction market initiatives. Information seekers want to either:

  • Pay in order to get some information about the likelihood of some event. For example an insurance company may wish to assess the risk of an earthquake in a particular area, in order to decide the pricing of their policies. They are OK paying some money to do so, as they should make that up by having a better pricing of their insurance products.

  • Pay in order to convince others of the likelihood of some event. Taking back the state actor example, the US could have benefited from paying in order to convince other nations that Russia would attack Ukraine.