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SUMMARY:Increasing Liquidity in Multi-Outcome Claims
DESCRIPTION:Previous articles have described a few simple formats of prediction market: simple double auctions, markets with open-ended prices, the symmetry of complementary purchases, and how to integrate an order book with an automated market maker. In this article, I describe the mechanics of multi-outcome markets, both as most markets currently implement them, and as I expect to implement them in the Zocalo Prediction Market. I've presented this idea before, so you can get another look at the idea by reviewing my slides. ( PowerPoint 3MB, PDF 2.6MB). The basic idea is that instead of two exclusive outcomes, you want the market to give a prediction about an event that might turn out in one of three or more ways. Canonical examples include an election with multiple candidates running, or a tournament among some number of teams. The straightforward approach is to create a pair of assets for each candidate, representing respectively, that competitor's chances of winning and losing. This way you end up with N separate markets, and each one has a price for buying and selling the particular candidate that gives their chance of winning. The same general idea can...
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