Rare Event
In prediction markets, rare events are outcomes that trade at low probability levels for most of a market’s lifetime. They are often assigned small prices because participants believe they are unlikely.
These events still matter because low probability does not mean impossible. Rare events can occur due to shocks, late-breaking information, or structural uncertainty that the market underestimated. Markets often struggle to price rare events accurately. Limited attention, low trading volume, and behavioral bias can push probabilities too low. When rare events resolve as true, they often appear as large forecast errors or unexpected outcomes. These cases are especially informative for understanding market limits.
For analysts, rare events are critical in prediction markets data. They reveal how well markets handle tail risk and low-probability scenarios.
Why It Matters
Rare events test the boundaries of prediction markets. They show whether markets properly account for unlikely but impactful outcomes.
How are rare events identified in prediction markets?
Rare events are identified by their low probability prices before resolution. Analysts often use thresholds, such as probabilities below 5% or 10%. These thresholds help flag outcomes that the market considered unlikely. Prediction markets data makes this classification explicit.
Why do prediction markets often underprice rare events?
Prediction markets may underprice rare events due to limited attention or low incentives to trade them. Participants often focus on dominant outcomes instead. Behavioral bias can also cause systematic neglect of low-probability paths. This leads to compressed probabilities near zero.
How are rare events used in prediction markets data analysis?
Analysts study rare events to assess tail risk and miscalibration. Comparing predicted probabilities with actual resolutions highlights weaknesses in forecasting. Rare events are weighted heavily in risk analysis and model evaluation. They improve understanding of uncertainty extremes.
Real-World Example
On Polymarket, an outcome priced below 0.05 may still resolve as true due to an unexpected decision or sudden event. That resolution would be classified as a rare event.
Rare Event and FinFeedAPI
FinFeedAPI’s Prediction Markets API provides prediction markets data needed to identify and analyze rare events. Analysts can track low-probability outcomes, compare them with final resolutions, and measure tail risk. This supports calibration studies, risk modeling, and forecast evaluation. The API enables consistent rare event analysis across prediction markets.