Model-Market Gap Analyzer

Overview

This pillar measures the difference between your probability estimate and the market's implied probability. It is the fundamental tool for identifying undervalued or overvalued contracts and making value-based trades.

What It Does

The analyzer takes your private probability for an event and compares it to the live market price, which represents the crowd's consensus probability. It then calculates the 'gap' or 'edge' in percentage terms. This quantifies exactly how much your model disagrees with the market, forming the basis for a systematic trading strategy.

Why It Matters

Successful prediction market trading relies on finding and exploiting mispricing. This pillar transforms subjective feelings into a concrete, actionable number, allowing you to systematically identify opportunities where you have a positive expected value.

How It Works

First, you input your own probability estimate for a market's outcome, generated from your research or another pillar. The tool then fetches the current 'Yes' or 'No' contract price from the market. Finally, it calculates the difference, presenting it as your 'Edge Percentage', which signals the strength of the potential trading opportunity.

Methodology

The core calculation is Edge = P_internal - P_market. P_internal is the user-provided probability. P_market is the contract price (e.g., $0.65 implies 65% probability). The pillar also calculates a Kelly Criterion fraction for suggested staking and can compute a Z-score by comparing the current edge to the historical volatility of the market's price.

Edge & Advantage

It provides a disciplined framework for value trading, ensuring you only risk capital when your quantified analytical edge exceeds a predefined threshold.

Key Indicators

• Edge Percentage

  high

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

• Kelly Criterion Fraction

  high

  An optimal stake size recommendation to maximize long-term growth, based on your edge and the odds.

• Mispricing Z-Score

  medium

  Measures how many standard deviations the current price is from its recent historical average, indicating unusual pricing.

Data Sources

• User's Predictive Model

  Provides the user's internal probability estimate, which is the primary input for the comparison.

• Prediction Market API

  Provides the live market-implied probability via contract prices.

Example Questions This Pillar Answers

• → Will the S&P 500 close above 5,500 by the end of the year?
• → Will the next UK general election be held before December 2024?
• → Will Bitcoin's price surpass $80,000 in the next six months?

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