legibility

The degree to which market prices reveal specific underlying information. Prediction markets have high legibility because contracts reference explicit events, making the information behind a price move visible to all participants unlike stocks where price moves have ambiguous causes.

Cluster: Information Theory

Related Concepts

• insider trading — Trading on material non-public information (MNPI) obtained through a breach of a confidentiality duty or implied promise. In prediction markets, this arises when participants trade on privileged access to information about upcoming events, creating adverse selection for other traders.
• information asymmetry — When some traders possess materially better knowledge about likely outcomes than other participants.
• price discovery — The process through which trading activity reveals the fair value or true probability of an event.

Articles about legibility

• Legibility by Andrew Courtney