Implied vs. Model Probability Gap

Overview

This pillar pinpoints discrepancies between the market's implied probability and your own model's forecast. It is a powerful tool for systematically identifying potential value positions across any category.

What It Does

It directly compares two key data points: the current market price (what the crowd thinks) and a probability you provide from your own analysis. The pillar calculates the percentage difference, or 'gap', between these two figures. This immediately visualizes where your model agrees or disagrees with the market consensus.

Why It Matters

The predictive edge comes from leveraging a superior model. If your analysis is more accurate than the market's average, this gap represents a quantifiable value opportunity. It helps you move beyond gut feelings to make disciplined, data-driven predictions.

How It Works

First, the pillar ingests the live market price, converting it to an implied probability (e.g., 60 cents equals 60%). Next, you input your model's probability for the same outcome (e.g., 75%). The pillar then computes the gap (+15%) and flags it as a potential opportunity, suggesting the market may be underpriced.

Methodology

The core calculation is: Probability Gap = P_model - P_market. P_market is the current 'Yes' share price of the market. P_model is the probability estimate provided by the user's external model or analysis. The result is a positive or negative percentage, indicating the direction and magnitude of the discrepancy.

Edge & Advantage

This pillar provides a systematic framework for value trading. It forces a direct comparison of your beliefs against the market price, filtering out noise and focusing only on quantifiable edges.

Key Indicators

• Probability Gap

  high

  The percentage point difference between your model's probability and the market's implied probability.

• Value Threshold

  medium

  A user-defined minimum gap required to consider a position, filtering for high-conviction opportunities.

• Market Implied Odds

  low

  The current market price translated into traditional betting odds for contextual comparison.

Data Sources

• Prediction Market API

  Provides the live market price, which is used to calculate the implied probability.

• User-Provided Model

  Your own analysis, spreadsheet, or algorithm that generates a probability for a market's outcome.

Example Questions This Pillar Answers

• → Is the market underpricing the probability of this crypto token hitting its price target according to my on-chain analysis?
• → Does my election model show a significant value opportunity in the current odds for a specific candidate?
• → Will this company's earnings beat expectations by more than the market currently implies?

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