Expected Payout
In prediction markets, expected payout represents what a position is worth on average given current probabilities. It multiplies the potential payout by the implied probability of the outcome.
Unlike potential payout, expected payout accounts for uncertainty. A high upside with low probability may still have a low expected payout. Expected payout changes as probabilities move. When belief shifts, the expected value of holding or exiting a position changes even if the payout rules stay the same.
This concept is central to rational decision-making. Traders compare expected payout to cost, risk, and alternative positions when choosing where to allocate capital.
For analysts, expected payout helps explain trading behavior in prediction markets data. It clarifies why markets move toward balance between risk and reward.
Why It Matters
Expected payout connects probability to value. It helps users understand whether a forecast is attractive, not just whether it is likely.
How is expected payout different from potential payout in prediction markets?
Potential payout shows the maximum return if an outcome resolves as true. Expected payout adjusts that return by the probability of the outcome. High potential payout does not imply high expected payout. This distinction explains why some attractive-looking bets are still poor value.
Why can expected payout be similar across very different outcomes?
Markets tend to adjust prices so that expected payouts converge. Low-probability outcomes offer higher upside, while high-probability outcomes offer lower upside. This balancing effect is a core feature of prediction markets. It reflects risk-reward equilibrium rather than agreement.
How do traders use expected payout when choosing positions?
Traders compare expected payout to the cost of entering a position. Positions with higher expected payout relative to cost are more attractive. Changes in probability or price can quickly alter expected payout. This drives continuous trading and rebalancing.
Real-World Example
On Polymarket, an outcome priced at 0.20 may offer a higher potential payout than one priced at 0.70. However, once probability is factored in, both positions may have similar expected payouts, explaining why both attract traders.
Expected Payout and FinFeedAPI
FinFeedAPI’s Prediction Markets API provides prediction markets data needed to compute expected payout. Analysts can combine outcome probability prices with payout rules and position data to model expected value over time. This supports incentive analysis, value-based modeling, and behavior interpretation. The API enables consistent expected payout analysis across prediction markets.