Prediction Markets Fail
on Reasoning, Not Odds
Validity audits the logic behind market probabilities—exposing fragile assumptions, unsupported causal claims, and mispriced risk.
Validity does not predict outcomes or generate probabilities. It evaluates whether the reasoning used to justify a probability is structurally sound.
Market Prices Are Arguments in Disguise
Prediction markets appear quantitative, but pricing is ultimately driven by narratives, assumptions, and causal claims—many of which go unexamined.
- Probabilities derived from headline logic rather than causal analysis
- Market consensus forming around shared assumptions
- Confidence amplified by liquidity, not evidence
- Base rates ignored in favour of recent events
- Downside scenarios excluded from dominant narratives
When markets misprice outcomes, the failure is rarely mathematical. It is usually a failure of reasoning. Validity is designed to surface those failures.
A Logic Audit for Market Probabilities
Validity analyses the reasoning behind prediction market positions, research notes, and probability justifications to evaluate:
- Whether stated probabilities logically follow from the underlying evidence
- Where causal claims lack mechanisms or precedent
- How dependent a position is on untested assumptions
- Whether counterfactuals and base rates are incorporated
- Where downside risk is omitted or structurally discounted
Validity does not set odds or recommend trades. It evaluates whether the reasoning behind a probability holds up under scrutiny.
Before the Trade. Before the Position. Before Resolution.
Validity is used at three critical points:
Pre-Trade Review
Stress-test the logic behind a proposed probability or position before capital is committed.
Market Consensus Audit
Evaluate the dominant narrative driving current pricing to identify assumption risk and logical gaps.
Post-Resolution Analysis
Review resolved markets to understand where reasoning failed and improve future probability assessment.
What It Detects
Validity flags reasoning patterns commonly associated with mispriced markets:
Assumption Stacking
Multiple interdependent assumptions required for an outcome, none independently validated.
Causal Overstatement
Outcomes asserted without mechanisms linking events to resolution.
Base-Rate Neglect
Historical frequencies or comparable outcomes ignored when assigning probabilities.
Narrative Dominance
Compelling stories substitute for analytical support and crowd out alternative scenarios.
Downside Blindness
Low-probability, high-impact failure modes excluded from probability reasoning.
Sample Output
Illustrative example of a Validity market reasoning audit
Assumption Stacking
The implied probability depends on multiple untested assumptions resolving favourably without independent justification.
Base-Rate Neglect
Comparable historical outcomes are not incorporated into probability reasoning.
Downside Blindness
Failure scenarios are acknowledged narratively but excluded from probability weighting.
It Improves Probability Discipline
Traders and analysts use Validity to:
- Identify where confidence exceeds evidentiary support
- Stress-test market narratives before capital commitment
- Clarify which assumptions must hold for a position to succeed
- Create defensible probability rationales and post-trade audit trails
Validity does not tell you what will happen. It ensures your probability reasoning can survive resolution.
Designed for Polymarket-Style Markets
Polymarket prices reflect collective belief under uncertainty. Validity evaluates the reasoning behind those beliefs—examining whether implied probabilities are supported by evidence, causal mechanisms, and historical context.
Traders use Validity to audit market narratives, identify assumption-heavy consensus, and clarify what must be true for current pricing to be justified. It does not forecast outcomes or suggest positions. It evaluates the logic behind them.