A prediction market enables the trading of uncertain future outcomes. An example prediction market offers the question "Will Hillary Clinton win the 2016 US Presidential election?". The possible answers are 'yes' and 'no', and everyone who owns shares of the winning answer will receive $1. Shares can be traded, and the price of each share indicates the probability of that result becoming true. 'Yes' trading for 65% indicates that Hillary Clinton, as perceived by the market, has a 65% chance of winning the election. In a sufficiently liquid market, 'No' will trade for 35%.
A decentralized prediction market is a prediction market that is not controlled by a centralized party, and generally pursues features such as censorship resistance, manipulation resistance, and privacy for the participants in the system.
The most notable existing decentralized predicion markets are Truthcoin and Augur. Each has a significant amount of criticism and skepticism stacked against it, though mostly only existing in an informal context.
Arbiter: A fallible entity that must be trusted to provide correct information about the physical world.
Oracle: While often referring to something that can provide any information as an act of God, within the context of prediction markets 'Oracle' typically refers to an entity that can accurately provide information about the physical world.
Trust Agility: Trusting a central authority, but with the ability to choose a different trusted authority on short notice, with little risk, and with little cost.
2014-??-?? - On Decentralizing Prediction Markets and Order Books - 15d12ce7
2015-10-07 - Truthcoin Whitepaper - 2d99ca75
2015-??-?? - Augur: a Decentralized, Open-Source Platform for Prediction Markets - c84b4a98
2015-10-?? - Stake Oracles - be390bf
2014-03-28 - SchellingCoin: A Minimal-Trust Universal Data Feed
2015-02-26 - A Decentralized Lie Detector
2015-06-27 - Building a better lie detector
David Vorick