“parlays are systematically overpriced, and the gap grows with each added leg”
Analyzes 23 million moneyline trades on Kalshi across major sport leagues and finds two systematic ways market prices fail as probabilities. Calibration is not static: parameters sit near perfect-calibration values mid-contract but depart sharply as expiry approaches, with the final ten minutes producing a step-like Prelec curve consistent with insurance-demand behavior by traders holding losing positions. Cross-game parlays are systematically overpriced relative to the product of their leg prices, with overpricing growing in leg count and a separate market-level markup at the parlay-pricing stage. The practical takeaway: treating prediction-market prices as probabilities requires conditioning on time to expiry and product type, not just price.
Extensive technical background assumed
Platforms mentioned: Kalshi