Free lesson · Prediction foundations

A dollar claim is not a news headline

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A binary share pays according to a written criterion. Similar headlines can settle differently when thresholds, sources or deadlines differ.

Record the outcome source, observation time, exact inequality, amendment process and exceptional settlement terms. Distinguish the event occurring from the platform accepting evidence and releasing collateral.

For a simple fully collateralized $1-or-$0 claim, separate terminal payout from purchase profit. The purchase cost is lost when the event fails; a successful payout includes recovery of that cost.

Apply it in a strategy

• Build a contract card and two-state profit table before comparing prediction markets.
• Record the input timestamp, executable quantity, currency and horizon. Reconcile the result with a cash-flow or state table.
• Stress this failure condition: A void or alternative payout rule adds states that the simple binary formula omits.

Research deliverable

Build and explain a a dollar claim is not a news headline worksheet. Build a contract card and two-state profit table before comparing prediction markets.

Evidence boundary: Synthetic arithmetic and scenarios illustrate mechanics. They are not historical returns, a paper replication, or evidence of an executable edge. Research sources and their access limitations are recorded at the end of this module.

Research sources, review dates and limitations

# Python 3.10+; standard library unless NumPy is imported below.
# Inputs and outputs use the units defined in this lesson. Synthetic teaching example.
def binary_profit(shares,ask,outcome,cost=0):
    if shares<0 or not 0<=ask<=1 or outcome not in (0,1) or cost<0: raise ValueError("Invalid binary contract inputs")
    return shares*(outcome-ask)-cost

print(binary_profit(100,.62,1,1),binary_profit(100,.62,0,1))