A backtest that looks great often tells you nothing, because it used prices nobody could have bought. Prediction market backtesting fixes that by rebuilding what was knowable and tradable at each moment. The lesson covers a research pipeline with timestamped quotes, versioned contract terms and an audit log, then walk-forward splits that train on the past and test on later markets. It shows why a model at 58% against a last trade of 51% looks far less impressive when the executable ask is 56 cents. Correlated contracts from one news story must be grouped together. If you plan to trust a model with real stakes, this teaches you to tell a real signal from a flattering replay.
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.
