Method & Sources
How we identify probability mispricings in US macro Polymarket markets.
🎯 Core Principle
Polymarket is a prediction market where each YES/NO contract trades between 0¢ and 100¢. The price reflects the collective implied probability that the event resolves YES. A contract at 30¢ means the market assigns a 30% probability to a YES resolution.
Our approach compares this implied probability against an independent fundamental estimate based on official data. When the gap is wide enough (≥ 8–10 percentage points) and conviction is high, a theoretical trade opportunity exists.
Gap (pp) = Market Price − Estimated Fair Value
Negative → market overprices YES → opportunity to buy NO
Positive → market underprices YES → opportunity to buy YES
⚙️ Daily Analysis Process
1
Market Extraction
All US Macro markets on Polymarket are extracted daily. We retrieve the current price, expiry date, and exact contract definition.
2
Official Data Collection
For each market, we source relevant public data: BLS releases, Fed projections, nowcasting models, professional economist consensus (Philadelphia Fed SPF, Wall Street forecasters).
3
Fair Value Estimation
We build a probability distribution from available data, weighting different scenarios (base case, upside, downside) and accounting for known biases. This estimate is subjective and fallible.
4
Safety Margin
We only act when the gap exceeds a minimum threshold (typically 8–10pp) to absorb estimation uncertainty and transaction costs. The rule: buy NO if fair value < market price − margin.
5
Scoring & Ranking
Each opportunity is scored on 4 criteria: gap size, conviction level (confidence 1–10), liquidity ($24h volume), and resolution clarity (precise date and data source).
📚 Data Sources
BLS — Bureau of Labor Statistics
CPI (monthly and annual inflation), monthly jobs report (NFP, U-3 unemployment rate), weekly initial claims. Official US government publications.
bls.gov →
Federal Reserve / FOMC
Rate decisions, dot plot, quarterly economic projections (SEP), FOMC minutes. CME FedWatch Tool for market-implied probabilities on Fed funds futures.
federalreserve.gov →
Philadelphia Fed — SPF
Survey of Professional Forecasters: quarterly consensus from ~40 economists on GDP, inflation, unemployment. Key institutional reference for calibrating probabilities.
philadelphiafed.org →
Cleveland Fed — Nowcasting
Near real-time inflation nowcasting models. Inflation Nowcasting and Inflation Expectations updated frequently between BLS releases.
clevelandfed.org →
NY Fed — DSGE Model
New York Fed DSGE model: recession probabilities, 4-quarter GDP growth forecasts. Updated quarterly.
newyorkfed.org →
BEA — Bureau of Economic Analysis
Quarterly GDP (advance, preliminary, final estimate), PCE price index (the Fed's preferred inflation measure). Official publications.
bea.gov →
Polymarket API
Live market prices via the public Gamma API (gamma-api.polymarket.com). Portfolio prices are loaded in real-time each time the Portfolio tab is opened.
polymarket.com →
CME FedWatch Tool
Market-implied probabilities for FOMC decisions, derived from Fed funds futures. Reference for calibrating Polymarket rate markets.
cmegroup.com →
⚠️ Known Limits & Biases
📉
Availability bias — Recent shocks (Iran war, tariffs) are overrepresented in Polymarket prices and potentially in our estimates. Markets overreact to recent news.
🎯
Estimation imprecision — "Fair value" is an opinion, not a certainty. The true confidence interval is wide (±10–15pp typically). A 10pp gap may not be actionable in practice.
💧
Liquidity & spread — In low-volume markets (<$50K), the bid/ask spread can absorb the entire theoretical gap. Analyses always include available volume.
📅
Resolution & exact definition — The precise contract definition (rounding, data source, date) can create ambiguities. We always verify the resolution clause before entering a position.
🔄
Statistical revisions — The BLS regularly revises its figures. A contract may resolve on the unrevised "advance" figure, which can differ from the final number.
⚡
Tail risk & exogenous events — Wars, bank failures, natural disasters are by definition unmodelable. Estimates assume no additional major exogenous shock.
📖 Glossary
Market price Current price of the YES contract on Polymarket (0–100%). Equivalent to the collective implied probability.
Fair value Our fundamental estimate of the true probability, based on official data and economist consensus.
Gap (pp) Difference in percentage points between market price and fair value. Measures the potential opportunity.
Safety margin Minimum gap threshold required to justify a trade, typically 8–10pp. Absorbs estimation uncertainty.
Confidence (1–10) Subjective score reflecting certainty of the fundamental estimate. 8–10 = strong conviction based on solid data. 4–5 = uncertain estimate.
Unrealized P&L Profit or loss on open positions, calculated in real-time from live Polymarket prices.
Simulated stake The portfolio uses $100 per position for illustration. Trades are theoretical and do not constitute investment advice.
Catalyst Next data release likely to significantly move the market price before resolution.
MacroPilot AI is an academic analysis tool. Published analyses do not constitute investment advice in any way. All trades on Polymarket carry risk of capital loss. Estimated probabilities are opinions that may be wrong.