Two venues, two prices, one apparent gap. Before you call it prediction market arbitrage, ask whether both contracts pay out on the same facts. The lesson makes you compare wording, cutoff time, resolution source, cancellation rules and fees before you subtract a single price. Then it builds a payout matrix for a matched pair: a YES ask of 46 cents and a NO ask of 50 cents leave a thin margin that fees can shrink to a penny. It also covers how a trade breaks, like one leg filling while the other reprices. If you hunt gaps between books and markets, this is the checklist that stops a mismatched pair from costing you real money.
Learning objectives
- Understand the methodology and why professionals test it.
- Reproduce the worked example and identify its critical assumptions.
- Apply the technique in a nonfinancial paper-research exercise.
- Distinguish a robust conclusion from a seductive but unsupported interpretation.
