Prediction Market Foundations

Syllabus

1. Module 1

   A price is a probability

   What a contract pays, how a price turns into a probability, and how to put a prediction market price on the same scale as a sportsbook line.

   1. Contracts and payouts12 min

      What a Yes and a No share pay, and how cost, profit, loss and return follow from the price.

      Objectives

      • Explain what a Yes and a No share pay at resolution and why their prices sum to about $1.
      • Calculate the cost, profit, loss and return of a position from its price and size.
   2. Reading a price as a probability14 min

      Why a price works as a probability, what it does and does not claim, and what to do when outcomes do not add up to 100%.

      Objectives

      • Convert a contract price into an implied probability and state what that probability does and does not claim.
      • Check whether a set of outcome prices sums to about 100%, normalise it, and explain the gap.
   3. Odds formats: cents, decimal, American13 min

      Put a prediction market price and a sportsbook line on the same scale, and see what the book's margin costs.

      Objectives

      • Convert between cents, decimal odds and American odds.
      • Compare a sportsbook line with a prediction market price on one scale and account for the book's margin.

   Module check

   10 questions drawn from the module's pool, pass mark 80%. Retake it as often as you like: every retake draws new questions, and you see the answer and explanation for each one.

2. Module 2

   How the market works

   The order book behind every price, what liquidity does to the price you actually get, and the costs that decide whether an edge survives.

   1. The order book: bid, ask and spread13 min

      Where a price comes from, why the number on the page is not the number you trade at, and what crossing the spread costs.

      Objectives

      • Read the best bid, best ask, spread and midpoint from an order book.
      • Explain which price a buyer and a seller actually get, and why the displayed price differs from it.
   2. Liquidity and slippage13 min

      What happens when an order is larger than the best offer, and why a price in a quiet market means less.

      Objectives

      • Calculate the average fill price of an order that walks through several levels of the book.
      • Explain why a price in a thin market carries less information, and check depth, spread and activity before trusting it.
   3. Fees and the real cost of a trade14 min

      How fees and the spread move your break-even probability, and why money tied up until resolution has a price too.

      Objectives

      • Calculate how the fee and the spread move the break-even probability of a trade.
      • Explain why capital tied up until resolution is a cost, and compute a simple annualised return.

   Module check

   10 questions drawn from the module's pool, pass mark 80%. Retake it as often as you like: every retake draws new questions, and you see the answer and explanation for each one.

3. Module 3

   What settles a market

   Reading resolution rules like a contract: the source, the deadline, the condition, the traps between title and text, and who decides when reality is messy.

   1. The anatomy of resolution rules14 min

      Every rule names a source, a deadline and a condition. Find all three, and tell a touch from a terminal condition.

      Objectives

      • Identify the resolution source, the deadline and the condition in a market's rules.
      • Distinguish touch conditions from terminal conditions and explain how each changes the probability over time.
   2. When the title and the rules disagree13 min

      The common gaps between a headline and its rules, and the edge cases a good rule has to cover.

      Objectives

      • Spot where a market's title and its rules would resolve differently.
      • Name the edge cases a rule has to cover — postponement, cancellation, revision, partial outcomes — and check how a rule handles them.
   3. Disputes and ambiguous outcomes13 min

      Who decides how a market resolves, how an outcome can be challenged, and how to price the risk that the rules surprise you.

      Objectives

      • Explain how an outcome is proposed, can be challenged and is escalated before a market settles.
      • Price ambiguity risk into a trade by combining the chance of the event with the chance that the rules resolve it as expected.

   Module check

   10 questions drawn from the module's pool, pass mark 80%. Retake it as often as you like: every retake draws new questions, and you see the answer and explanation for each one.

4. Module 4

   From reading to judging

   Start from how often things like this happen, check how good market prices have actually been, and put your own number on a question — before you look at the price.

   1. Base rates first14 min

      The outside view: how often do things like this happen? Then adjust for the case in front of you — without throwing the base rate away.

      Objectives

      • Choose a reference class for a question and read its base rate.
      • Adjust from a base rate with case-specific evidence without discarding the base rate.
   2. Is the price right? How well markets are calibrated15 min

      What calibration means, how good real market prices have been, and how to score any set of forecasts with the Brier score.

      Objectives

      • Read a calibration table and say whether prices ran too high or too low.
      • Calculate a Brier score and compare it with a base-rate forecast.
   3. Your first forecast14 min

      A five-step routine from rules to a number, and a decision rule for when a gap to the market is worth acting on.

      Objectives

      • Follow a repeatable routine: rules, base rate, evidence, your number, then the comparison with the price.
      • Decide whether a gap between your estimate and the price is worth acting on after costs, ambiguity and your own uncertainty.

   Module check

   10 questions drawn from the module's pool, pass mark 80%. Retake it as often as you like: every retake draws new questions, and you see the answer and explanation for each one.