What are the most common mistakes people make when using prediction markets?

Detailed Explanation

Many users treat prediction market prices as definitive forecasts rather than conditional probabilities shaped by structure and incentives. Others overlook liquidity, fees, and settlement rules, leading to poor execution or unexpected outcomes. Overconfidence, narrative bias, and failure to account for correlated risks further degrade decision quality. These mistakes are most common among users who focus on price alone without understanding how that price is formed.

Common Scenarios

• Chasing late price moves
• Trading ambiguous contracts
• Overconcentrating on a single thesis
• Ignoring execution costs

Exceptions & Edge Cases

• If markets are deep and clear, then errors are less costly.
• If users hold to settlement, then execution mistakes matter less.
• If discipline is strong, then markets reward patience.

Practical Examples

• Buying at 90% without understanding resolution risk.
• Paying wide spreads for small edges.

Actionable Takeaways

• ✅ Read rules before trading
• ✅ Respect liquidity and costs
• ✅ Size positions conservatively
• ✅ Treat probabilities as estimates, not truths

‍