Which concept claims prediction markets provide social value by aggregating information?

• A. Hedging reduces risk
• B. Prediction markets provide social utility
• C. Peer-to-peer betting
• D. Murphy v. NCAA (2018)

Answer: (B)

The idea is that prediction markets create social value by turning diverse, private information into a single, useful forecast. When many people with different knowledge about an event trade contracts, each trade carries information about that person’s beliefs or new data they’ve seen. The market price that emerges summarizes all those signals into an overall probability of the outcome. Because many participants contribute information, the resulting price tends to be a more accurate reflection of likelihood than any individual guess. This collective forecast can guide decisions, allocate resources, and improve planning across society, which is the social utility these markets claim to provide.

Hedging reduces risk is about protecting a position for an individual or firm, not about generating society-wide forecasts from aggregated information. Peer-to-peer betting describes the basic structure of who is betting, not the value that comes from information aggregation. Murphy v. NCAA (2018) is a legal ruling about the legality of certain bets, not about the informational and social benefits of prediction markets.