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Why don't prediction market odds add up to 100%?

· 6 min read
BT365 Team
BlockTrader365

Open any prediction market with several candidates and add up the YES prices. In a market where exactly one outcome can win, those prices should sum to $1 — each YES share pays out $1 if its outcome resolves true, and precisely one of them will.

They frequently sum to $1.03. Sometimes $0.96.

That gap is not a display bug, and it is not free money either. It is worth understanding what it actually is.

Each outcome is its own order book​

The intuition that the prices "should" sum to $1 quietly assumes something that isn't true: that the market prices the outcomes together. It doesn't.

Each outcome trades in a separate order book, against whoever happens to be buying and selling that particular outcome. Someone with a strong view on one candidate pushes that book without touching any other. A large fill eats one book's depth and leaves the rest untouched. Nothing in the exchange mechanism forces the books into agreement.

Polymarket groups these mutually exclusive outcomes under what it calls NegRisk — "exactly one wins" — and settles them through a dedicated exchange contract. The grouping defines the payout relationship. It does not continuously enforce the pricing relationship. The only thing that does is a trader taking the other side.

What the gap means in each direction​

Prices sum to more than $1. The market is collectively pricing the outcomes as more than certain. Sell one share of every outcome and you collect, say, $1.03 today against the $1 that will be paid out at resolution. Exactly one outcome pays; the other legs expire worthless. The $0.03 is yours regardless of which one wins.

Prices sum to less than $1. The mirror image. Buy one share of every outcome for $0.96 and hold a basket guaranteed to be worth exactly $1 at resolution, whoever wins.

Note what is absent from both descriptions: any view about who wins. The position is constructed so the outcome does not matter. That is what makes it arbitrage rather than a bet.

Why it persists​

If this is visible on a public order book, why hasn't someone already taken it?

Usually someone has, and what remains is the part that isn't worth taking. Several things eat the gap:

  • Fees and slippage. The quoted price is for the top of the book. A basket large enough to be worth the effort walks down each book, and the average fill is worse than the quote on every leg simultaneously.
  • Capital lockup. The $0.03 is realised at resolution. If that is four months out, the capital is committed for four months — and the annualised return is what matters, not the headline gap.
  • Leg risk. The arbitrage exists only if every leg fills. Fill four of five and you no longer hold a hedged basket; you hold a directional position on the outcomes you did fill, which is precisely the exposure you were trying not to have.
  • Resolution risk. The payoff assumes the market resolves the way its rules describe. Ambiguously worded markets are where that assumption gets tested.

The gaps that survive are generally the ones where these costs exceed the spread. The interesting question is never "is there a gap" — it is whether the gap clears the costs of closing it.

Why this is fiddly to trade by hand​

The mechanical problem is that the legs have to be filled close to simultaneously. Work through five outcomes manually and the prices you started from have moved by the time you reach the last one. The gap you were trading may be gone, or inverted, and you are left holding a partial basket.

This is a reasonable thing to automate, and it is roughly the shape of BT365's POLYMARKET_ARB_V1 strategy: identify NegRisk groups whose best YES asks sum sufficiently below $1 to clear the configured edge and slippage buffers, size each basket against the agent's available balance and spend caps, and track the legs as one basket so a partial fill is recognised as an open risk rather than a completed trade.

None of that removes the constraints above. Capital is still locked until resolution, resolution risk is still real, and an automated system fills partial baskets faster than a human does. It removes the coordination problem, which is a genuine but narrow part of the difficulty.

The useful takeaway​

Odds summing to more than 100% is not a mispricing in the sense of someone being wrong about the world. It is a structural artifact of mutually exclusive outcomes trading in independent books, and its size is a rough measure of how much attention that market is getting.

A market group sitting at $1.08 is telling you something about its liquidity — that nobody is actively keeping its books aligned. Whether that is an opportunity or a warning depends entirely on why the market is being ignored.

Part of our guide to how prediction markets actually work.

BT365 runs prediction markets, perps, and spot from one self-custodial account. Explore the platform or read the agent documentation.