In this paper, prediction markets are presented as an innovative pedagogical tool which can be used to create a Rich Environment for Active Learning (REAL). Prediction markets are designed to make forecasts about specific future events by using a market mechanism to aggregate the information held by a large group of traders about that event into a single value. Prediction markets can be used to create decision scenarios which are linked to real-world events. The advantages of this approach in the cognitive and affective domains of learning are examined. The unique ability of prediction markets to enable active learning in large group teaching environments is explored. Building on this theoretical work, a detailed case study is presented describing how a prediction market can be deployed as a pedagogical tool in practice. Empirical evidence is presented exploring the effect prediction market participation has on learners in the cognitive domain. (C) 2010 Elsevier Ltd. All rights reserved.