Which defines a marketplace where people trade contracts based on predicted outcomes of future events?

• A. Bet
• B. Prediction market
• C. Wager
• D. Gambling

Answer: (B)

Prediction markets are marketplaces where people trade contracts whose value is determined by whether a future event occurs. In these markets, you buy or sell contracts that pay out a fixed amount if a specific outcome happens, and perhaps nothing if it doesn’t. The current price of a contract acts like a probability estimate held by the market, because a contract priced at or near $1 suggests a high likelihood of the event, while a price near $0 suggests low likelihood. As new information appears, prices shift, helping to aggregate a wide range of knowledge and beliefs into a single forecast.

This structure differs from simple bets or wagers, which are typically individual, private stakes on an outcome without a transparent, traded market or standardized payout and liquidity. Gambling is the broad activity of risking money on uncertain outcomes, whereas a prediction market is a formal system designed to forecast events by allowing many participants to trade standardized contracts. The best fit for the described concept is a prediction market.