How do Prediction Markets work?
Prediction Markets are a simplified version of financial markets, where participants visit a web based platform to buy or sell shares on the probability of a future event.

The trading price reflects the likelihood that the issue in question will occur, or not. For example, a trading price of 63 cents means that there is a likelihood of 63% that the future event will occur, and a trading price of 25 cents means that there is a 25% chance that it will occur.

The bid, usually placed with play money, acts as an important incentive to increase the accuracy of the predictive behavior. Incentives encourage participants to express their realistic assessment, rather than an preference for hope for outcomes. Prediction Markets generally reflect a more accurate projection of future events than  traditional voting or polling based on projections.

As the bidding transactions are highly simplified,   participants do not need prior understanding of trading. Following the training sequence participants spend a few minutes a week to trade on the platform. Research demonstrates that Prediction Markets can produce accurate results with as few as 16 traders, and the longer markets run, the more accurate the results are.

The example below outlines the course of employee  trading throughout the year focused on the question of whether a company can meet its deadline to launch a certain product by August:
 


In this model, employees were trained to buy shares if they believed they would meet the deadline and sell if they thought the deadline would not be met. The vertical movements depict the course of the price change which translates into the percentage rate of the likelihood to meet the deadline to launch. In this case, the price (or probability) of this future event has gradually fallen from a record of nearly 80 cents to a few cents.

For the managers of this company, this graph demonstrates how from September through January company employees were confident that they would meet the deadline. It further demonstrates how their employees lost their confidence in meeting the February deadline, and by July it is almost certain that the August deadline will not be met, according to employee market predictions.