Michael Jones speaks to visitors to the Cryptoeconomics Lab at UC Digital Futures. Credit: Andrew Higley/UC Marketing + Brand
Prediction markets predicted the 2024 presidential election more accurately than traditional polls or experts. Prediction markets, also known as betting markets, are where contracts conditional on the occurrence of future events are traded.
The University of Cincinnati economist said the potential shown by successful election predictions and a crypto-friendly administration could lead to further adoption of cryptocurrencies.
Dr. Michael Jones, assistant professor of economics at the Carl H. Lindner School of Management and director of the Cryptoeconomics Laboratory at the University of California Digital Futures, says that Polymarket, a blockchain-based prediction market, will predict the outcome of the global economy. He said that he succeeded in predicting. The election showed that cryptocurrencies and blockchain technology have the potential to be more than just an investment.
“What's interesting is that we're seeing a lot of high-profile real-world use cases that demonstrate the value and utility of using blockchain,” Jones said.
Polymarket is the world's largest prediction market. Users can take a position on whether an event occurs. If they are correct, the payment will be made instantly. It is built on blockchain, an immutable digital ledger of economic transactions that records everything of value, not just financial transactions, in a global, verifiable system.
As Election Day approached, President Trump was trading at about 60 cents on the dollar on Polymarket. When Trump won the election, those who bet on him earned about 40 cents per share.
The market had a better chance of winning for Trump than most polls (which give a nearly 50-50 chance of winning the election), and he was closer to the final electoral tally.
“Polls are just people's opinions, and the experts had their opinions, but if they're wrong, there's no real consequence,” Jones said. “Maybe they got a little bit of heat in the media, but if you get it wrong on the prediction market side, you lose a lot of money.
“What people are starting to realize is that these prediction markets contain information and we should take them seriously.”
Jones said prediction markets can also be used for more practical problems.
For example, companies use them to determine the likelihood that a product will be released next year. Employees are usually encouraged to present an optimistic outlook to their employers. Prediction markets are more likely to provide unbiased opinions.
“The advantage is that it's built on the wisdom of the crowd,” Jones says. “When everyone can use their own confidential information, their personal experience of what they know, it aggregates all individuals in a sense and puts real money on the line.
“What you're actually doing is democratizing intelligence gathering.”
Some companies also use prediction markets to hedge risk, Jones said. They may take the position that they will pay if something happens that would otherwise harm their business, such as a natural disaster or an unfavorable court ruling.
The Defense Advanced Research Projects Agency (DARPA), part of the US Department of Defense, has experimented with using prediction markets to predict events such as terrorism, coups, and recessions.
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The DARPA project was controversial, with opposition to those profiting from tragedies such as terrorism. Still, some argue that the knowledge gained from prediction markets is more valuable than the potential downside.
“Economists are on both sides of this,” Jones said. “If you have to put this information out there, are you willing to accept that in return someone else benefits by being more likely to save a life? Because I know.”
For the past several years, the Commodity Futures Trading Commission has prohibited American citizens from participating in some prediction markets. But Jones said it would be naive to think Americans aren't participating, including in election prediction markets, because tools like virtual private networks allow users to hide their location online. .
During President Joe Biden's administration, the U.S. government, including the Securities and Exchange Commission, has been aggressive in pursuing lawsuits and regulations against crypto companies. Jones said fewer regulations are likely under the Trump administration.
“Many investors expect many of these lawsuits to be dismissed,” he said. “I think a lot of regulations for US-based crypto companies will be improved, so it will open up more economic activity for crypto companies.”
Jones expects it will be easier for crypto companies to locate and build business in the United States. He also expects more companies and individuals to adopt cryptocurrencies as an asset class.
Provided by University of Cincinnati
Quote: Election results show potential for prediction markets and blockchain, economists say (December 6, 2024) https://phys.org/news/2024-12-election-results-potential- Retrieved December 6, 2024 from blockchain-economist.html
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