Some gambling (e.g poker, blackjack, roulette) doesn't give predictions about the real world. Prediction markets are a specific form of gambling that yields pr

Some gambling (e.g poker, blackjack, roulette) doesn't give predictions about the real world. Prediction markets are a specific form of gambling that yields predictions about the real world. So all prediction markets are gambling, but not all gambling is a prediction market. One noteable difference between 'prediction markets' and the normal operation of bookies is who sets the prices. Usually, bookies offers odds on a bet, and for every new bet, they can set new odds taking the previous bets into account. This is called 'fixed-odds' betting. In 'prediction markets' people on all sides of a bet put money into a pool. Suppose the total pool has a value of $Z, you put in $X on outcome A, and in total people put $Y on outcome A, then if outcome A is the true outcome, you get $ Z * (X / Y) for your bet. This is called parimutuel betting. Beyond parimutuel betting, the idea is that once the pool is fixed, you can sell your bet. So in the above scenario, I could sell my X/Y share in outcome A to someone else. Later, the price of such shares allow us to track the markets opinion on changing odds. In reality, I think they tend to skip the parimutuel part, and instead just auction of an equal amount of shares for each outcome. The proceeds of this initial auction then become the shared pool.