In a prediction market, what are participants trading?

• A. Physical goods
• B. Contracts based on predicted outcomes
• C. Tickets to games
• D. Loans and credits

Answer: (B)

In prediction markets, participants trade contingent claims—contracts whose payoff depends on the outcome of a future event. You’re not buying physical goods or game tickets or loans; you’re buying or selling promises that pay out only if a predicted event occurs. For example, a contract might pay a fixed amount if a specific team wins a championship and nothing if they don’t. The price of that contract moves with how likely the market thinks the event will happen, so the market aggregates information from all traders to reflect a collective probability. This focus on outcome-based contracts is what makes prediction markets distinct from trading tangible items or straightforward financial loans.