Prediction Market User Guide

1. Principles
2. User
Interface

What is a prediction market?
A prediction market is an exchange where you can bet on your beliefs against those of
other participants.

The Good Judgment Project prediction market lets you bet on whether various
geopolical events will occur by a certain date.

Everyone starts wit the same amount of virtual money to bet with. Your goal is to
accumulate as much profit as possible by placing successful bets on correct outcomes.

Your bets reflect your predictions about events. If you change your mind along the
way, you should change your bet.


Introducing Prediction Shares
In this super simplified version of a stock market, bets are placed by buying and selling
shares in various outcomes with virtual money.

If the predicted outcome occurs, then every share in that outcome will be worth
$100. Otherwise, they will be worth $0. These are the two possible payoff values.

Before the outcome is decided, share prices are determined by supply and demand in
the market. Anyone can offer to buy or sell any number of shares at their chosen
price. Whenever a buyer and a seller agree on the price, a trade happens.

The shares trading price reflects the consensus opinion about the likelihood of that
outcome. For example, you can think of a share price of $70 as estimating a 70%
chance for that outcome.
Supply and demand drive the trading price
I want to
sell shares
at $75
I want to
sell shares
at $70
I want to
buy shares
at $70
I want to
buy shares
at $60
Trade happens
at $70 per
share
His price is
too high
Her price is
too low
Price
match!
Buying shares to bet on an outcome
The price at which you are willing to buy shares in an outcome depends on how
probable you think it is.

For example, if you believe that a particular outcome is highly likely, you might offer
to buy its shares at $70, a relatively high price. If the outcome occurs, its shares wil
pay off at $100 and you will make a profit of $30 for each share you bought. But if it
does not occur, the shares are worthless and you lose the $70 per share you paid.

If you believe another outcome is less likely, you might be willing to pay only a small
amount per share, for example $10. If this unlikely outcome occurs, you will make a
huge profit of $90 per share. But if it does not occur, you will lose only $10 per share.

As a rule, if you believe that an outcome has X% chance of occurring and you buy its
shares at prices below $X, you will profit in the long run if your beliefs are correct.
$0
Share value if outcome doesnt occur
Share value if outcome occurs
$100
$70
$
cash
Buyers Potential Profit = $30
Buyers Risk = $70
The buyers risk and profit calculus
share
Seller
Sells a share at $70
Buyer
Buys a share at $70
Selling shares to settle your bet
While the outcome is undecided you may settle your bet at any time by selling your
shares on the market.

If you can find a buyer willing to offer more for your shares than what you paid for
them, because the market went up in the meantime, youll make a profit (but not as
much as if you had waited for the shares to pay off at $100).

If you must sell for less than what you paid, because the market went down, youll
take a loss (but not as much as if you had waited for the shares to become totally
worthless).

Selling shares to bet against an outcome
When you are buying shares in an outcome, you are in effect betting that it will occur.
Conversely, when you sell its shares, you are betting that it wont occur.

For example, if you sell a share to someone at $70 and the outcome fails to
materialize, you will have earned the $70 the person paid you for a worthless share.

On the other hand, if the outcome does occur, the share you sold for $70 will pay off
at $100, and the $30 difference will be your loss.

As a rule, if you believe that an outcome has X% chance of occurring and you sell its
shares at prices above $X, you will profit in the long run if your beliefs are correct.

Short-selling shares you dont own
Short-selling, or shorting, allows you bet against an outcome when you dont own
any of its shares.

When you sell a share short, you borrow a share from the bank against a $100
deposit, then sell it to someone and pocket the money.

If the outcome occurs, you will lose your deposit the bank will use it to offset the
value of the share you borrowed. If the outcome doesnt occur, you will get a full
refund because the share you borrowed is now worthless so it costs you nothing to
return it.

In any case, you get to keep the proceeds of the sale, so the net cost of your bet, aka
your investment, is the amount of the deposit minus the trading price.
Example: short-selling a share at $70
1. You borrow a share from the bank and leave
a $100 deposit. If the outcome occurs, you
will lose your deposit, but if it doesnt occur,
you will get a full refund.

1. Now you hold a share that you can sell to
someone else, while the bank holds the $100
deposit in your name.

1. You sell the share and pocket the money. The
net cost to your available cash is $30: the
amount of the deposit minus the proceeds of
the sale.
$7
0
$10
0
depo
sit
$1
00
If the outcome occurs, you will lose your $100 deposit but still keep the $70 proceeds
of the sale, so you loss is only $30. If the outcome fails to occur, you will be refunded
your full deposit in addition to the proceeds of the sale, so your profit is $70.
$0
Share value if outcome doesnt occur
$70
share
Sellers Potential Profit = $70
Sellers Risk = $30
The short-sellers risk and profit calculus
Seller
Shorts a share at $70
Buyer
Buys a share at $70
$
cash
Share value if outcome occurs
$100
$70
$
Seller
Sells a share at $70
Buyer
Buys a share at $70
cash
share
Sellers Potential Profit = $70
Buyers Potential Profit = $30 Sellers Risk = $30
Buyers Risk = $70
Its a zero-sum game: the buyers risk is the
sellers profit opportunity, and vice versa
$0
Share value if outcome doesnt occur
Share value if outcome occurs
$100
Buying shares to settle a short-sale bet
While the outcome is undecided you may settle a short-sale bet at any time by buying
shares on the market to replace the ones you borrowed and sold. Thats called
covering your shorts.

If you can find someone willing to sell shares to you for less money than what you sold
them for because the market went down in the meantime youll make a profit
(albeit not as much as if you had waited for the shares to be totally worthless).

If you must buy the shares for more than what you sold them for because the
market went up in the meantime youll take a loss (albeit not as much as if you had
waited for the shares to be worth $100).

Example: covering a short-sale at $40
1. You buy a share on the market at the current
trading price, for example $40.


1. Now you hold a share that you can return to
the bank in place of the one you borrowed
earlier.


1. You return the share and collect your $100
deposit. Your net revenue in this operation is
the amount of the refund minus what you
paid for the share: $100 - $40 = $60.
$100
refund
$4
0
$1
00
Summary: the 4 kinds of market operations
Make a bet Settle your bet
Predict outcome
will occur
Buy shares
Buy shares to cover your
short sales
Predict outcome
wont occur
Short-sell shares
Sell the shares you
bought earlier
Ordering vs Trading
When you put an order on the market to buy or sell shares at a certain price, you are
not guaranteed a trade. A trade will only happen if someone elses price matches
yours.

If you offer to buy at a price lower than the lowest price people are selling at right
now, your offer will not lead to a trade immediately, but it will be displayed to others.
They may or may not decide to match your price later on. If no one takes you on, you
can decide to cancel your order.

The same principle applies if you offer to sell at a price higher than the highest price
people are buying at right now.
THE USER INTERFACE
Welcome to the prediction market
Browsing the
questions
All the questions you can trade
are listed on a single page and
may be filtered and sorted
according to various criteria,
categories and tags.

The highest-priced outcome for
each question is considered the
most likely and is highlighted.

Clicking on a question will
expand its description and list
all its outcomes and their
current prices

Clicking on a [Trade] button
takes you to the trading page
for that question.
Displaying your
portfolio
The buttons at the top of
the page provide quick
filtering options, including
one that displays only the
questions in which you
are currently invested.

Some basic information is
provided to help you
browse the current status
of your investments.

Clicking on a [Trade]
button takes you to the
trading page for that
question.
Trading
Screen
Information
about best
available
prices
Buy order form
Information
about your
available cash
and current
investment
in the selected
outcome
Display
control tabs
Trading agent
switch
Outcome selector
Sell order form
These are the questions possible outcomes. You
can only trade one at a time, so you must click to
select the outcome you want to trade next. The
selected outcome is highlighted
Question and outcome selector
Click here to read
the fine print
Click here to refresh the screen with the
latest prices, orders, and predictions
The table features each outcomes current
trading prices, as well as some information
about your investment in each.
Price-History Chart
The chart plots the evolution of an
outcomes share price over time.

It shows how the collective opinion
has evolved over time.

You can enlarge it and view it at
arbitrary scales by clicking on it.

You can track your own trades in the
enlarged version of the chart.
Your cash and position (in the selected outcome)
Your available cash

The value of your current investment
in the selected outcome (estimated
using the latest trading price)

The shares that you own, and may sell

The shares that you own but are
already committed to your sell orders

Alternatively, this panel may feature
the shares that you have sold short

The list of your outstanding orders:
those that have not yet found a taker
Click here to refresh
with the latest data
Click the red button to
cancel individual orders
Buying shares
To enter an order to buy shares, you must first choose a price,
then indicate the number of shares you wish to buy.

Carefully review the prices that are offered in the order book.
Unless you price matches at least the lowest selling price, your
order will not immediately lead to a trade.


The order book shows
you the lowest prices
at which you can buy
shares from other
people right now, and
how many shares are
offered at each price
The red dot indicates that this
particular order is yours. You
may cancel it by clicking on the
red dot.
When ready, click here for a detailed preview of your order
including maximum potential loss and profit. Only after you have
had a chance to fully review your order will you be asked to confirm
it
If your price the lowest selling price in the order book, a trade will happen immediately at the best
available prices (from your point of view).

But if your price is too low, your order will just go in the order book and be displayed to other
traders. It will stay there until a seller chooses to match your price, or until you cancel your order.

If a trade happens for fewer shares than you offered to buy, the unmatched portion of your order
will stay in the order book until someone matches it, or you cancel it.
Reviewing and confirming your order
Click here to confirm
and submit your order,
or to cancel and return
to the order form
Selling shares
To enter an order to sell shares, you must first choose a price,
then indicate the number of shares you wish to sell.

Carefully review the prices that are offered in the order book.
Unless you price matches at least the highest buying price, your
order will not immediately lead to a trade.


The order book shows
you the highest prices
at which you can sell
shares to other people
right now, and how
many shares are in
demand at each price
When ready, click here for a detailed preview of your order
including maximum potential loss and profit. Only after you have
had a chance to fully review your order will you be asked to confirm
it
Mixing Selling and Short-Selling
The exact same sell-order form is used to sell shares and to short-sell them. Whenever you
attempt to sell more shares than you already own, the software will assume that you mean
to short-sell the extra shares.

For example: If you dont own any shares but you enter an order to sell some, the software
will assume that you mean to short-sell the shares. Similarly, if you own only 3 shares, but
you enter an order to sell 5, the software will interpret this as an order to sell the 3 shares
that you own, plus another order to short-sell 2 more shares.

Mixing Buying and Buying-Back
The exact same buy-order form is used to buy shares and to buy back shares to cover your
shorts. Whenever you attempt to buy more shares than you have currently sold short, the
software will assume that you mean to buy the extra shares.

If you have sold short any shares and then you attempt to buy some shares, the software
will automatically make you cover your short sales before buying additional shares.

For example: if you previously short-sold 3 shares, and then you enter an order to buy 5, the
software will interpret this as an order to buy back the 3 shares you previously sold short,
plus another order to buy 2 more shares.

Reviewing your transactions
Selecting the Activity Log tab
will display a time-stamped
record of all your orders,
trades, agent activity and
other transactions relevant to
the question being traded.

Various filters let you display
only certain transaction types
(like trades, or payoffs) or
concerning just one outcome
in particular.
Your current investments consist of the
shares you currently hold and the shares you
shorted

For the purpose of valuing your investments,
the estimated value of your shares held and
shorted is computed as follows:

The estimated value of a share is the last
trading price for that outcome.

The estimated value of a shorted share is the
difference between $100 and the last trading
price for that outcome.
Computing the Value of Your Investments
$0
$100
Last trading price
Value of 1 shorted share
= $35
Value of 1 share
= $65
$65