Prices and Probability
Turning a price in cents into a probability, and understanding what that number actually claims.
Prices and Probability · 4 min readTurning a Price in Cents into a ProbabilityThe conversion is division by one hundred, which is the easy part. The useful part is knowing what the resulting number does and does not claim about the world.
Prices and Probability · 4 min readWhat Implied Probability Does Not Tell YouA market price is a probability weighted by money, not by knowledge. The difference explains most of the cases where a confident price turns out to be wrong.
Prices and Probability · 4 min readReading a Probability Change Without OverreactingMarkets move constantly. Most of that movement is noise. Here is how to tell which changes carry information and which are just the spread breathing.
Prices and Probability · 3 min readPercentage Points vs Percent, and Why It MattersA move from 2% to 3% is one percentage point and a fifty percent increase. Confusing the two produces headlines that are technically true and completely useless.
Prices and Probability · 3 min readDecimal, Fractional and American Odds, ConvertedFour ways of writing the same number, with the conversions in both directions and the reason converting everything to probability first is the only sane habit.
Prices and Probability · 4 min readThe Favourite-Longshot Bias, and Where It Shows UpAcross a century of betting and event markets, long shots are systematically overpriced and favourites slightly underpriced. Here is why, and where to expect it.
Prices and Probability · 3 min readMid Price, Last Trade and Which One Is the MarketThree numbers claim to be the price and they disagree. Which one to quote, which one to trade against, and how to tell when none of them is real.
Prices and Probability · 4 min readWhy Prices Near 1c and 99c Behave DifferentlyThe extremes are their own world. Tick size, capital cost and fees mean a price of 2 cents is not simply a small probability, and should not be read as one.
Prices and Probability · 3 min readWhen the Outcomes Do Not Add to 100%A field of outcomes should sum to one dollar. When it sums to more, you are seeing the spread. When it sums to less, something is missing or stale.
Prices and Probability · 3 min readTelling a Significant Move From NoiseA five-point move means nothing on its own. Measured against a market's own normal variation and its volume, it either means something or it does not.