Last year, it entered the United States on a large scale and is now used to track various events ranging from geopolitical issues to entertainment award results. But what exactly is it?

As an economist who has long studied markets and incentive mechanisms, my answer is simple: prediction markets are essentially markets. Markets are the fundamental tool for allocating resources, ensuring that goods and services flow to those who value them most.

In this process, markets also aggregate information: market clearing (i.e., reaching supply and demand equilibrium) is essentially a mechanism that consolidates all participants' perceptions and distills them into price signals.

Prediction market platforms and products directly leverage this information aggregation capability to forecast specific future events: they design assets linked to the event, which generate profits once a particular outcome occurs, and people trade these assets based on their judgments about whether the outcome will happen.