Understanding Subjective Judgment and Committee Resolution Prediction in Prediction Markets

Executive Summary

Subjective judgment committees play a pivotal role in the resolution process of prediction markets, especially in cases of ambiguity or disputes. These committees are responsible for interpreting market outcomes based on predefined rules and can significantly influence the resolution risk and pricing. This deep dive explores the mechanics of subjective judgment committees, their impact on resolution prediction, and how SettleRisk's API leverages this information to provide a comprehensive risk assessment.

Core Concept

Subjective judgment committees are often convened by prediction market platforms like Polymarket and Kalshi to make final determinations on market resolutions when there is no objective outcome or when disputes arise. The scoring model at SettleRisk evaluates the risk associated with these committees' decisions, which can affect the settlement of bets and the resulting payouts.

Quantitative Framework

SettleRisk employs a deterministic, closed-form scoring method to assess resolution risk, which includes the impact of subjective judgment committees. The risk score is calculated using the following formula:

Risk Score = f(D1, D2, ..., D15)

where D1 to D15 represent the individual drivers of resolution risk, including factors like market ambiguity, committee composition, and historical resolution patterns. The score ranges from 0 to 100, with higher values indicating higher resolution risk.

Worked Example

Suppose a prediction market event has a high degree of ambiguity regarding the wording of the resolution criteria. The subjective judgment committee will have a significant role in determining the final outcome. Using SettleRisk's API, we can calculate the risk score and other pricing parameters.

Python SDK Example

from settlerisk import SettleRiskClient

# Initialize the client
client = SettleRiskClient('your_api_key')

# Fetch risk score and pricing data for a specific market
market_id = 'example_market_id'
data = client.get_market_data(market_id)

# Display the risk score and other relevant data
print(f"Risk Score: {data['risk_score']}")
print(f"Settlement Delay (P50): {data['settlement_delay_p50']}")

TypeScript SDK Example

import { SettleRiskClient } from "settlerisk";

// Initialize the client
const client = new SettleRiskClient('your_api_key');

// Fetch risk score and pricing data for a specific market
const marketId = 'example_market_id';
client.getMarketData(marketId).then(data => {
  console.log(`Risk Score: ${data.riskScore}`);
  console.log(`Settlement Delay (P50): ${data.settlementDelayP50}`);
});

Implementation Notes

When implementing the SettleRisk API, it's important to consider the version stamp of the scoring model to ensure consistency and reproducibility of the risk assessments. Each version stamp corresponds to a specific iteration of the scoring model, which accounts for updates in the underlying data and methodology.

Failure Modes

One of the primary failure modes in subjective judgment committee resolution prediction is the unpredictability of committee decisions. Committees can be influenced by external factors, biases, or changes in membership, which can lead to inconsistent resolutions. SettleRisk mitigates this risk by incorporating historical committee decision data into its scoring model.

Checklist

When using SettleRisk's API for subjective judgment committee resolution prediction, consider the following checklist:

Verify the API key and ensure it has the necessary permissions.
Check the version stamp of the scoring model to align with your risk assessment requirements.
Review the historical data and trends related to the subjective judgment committee's decisions.
Monitor for any updates or changes in the committee composition that might affect the resolution risk.
Use the risk score and settlement delay data to inform your trading and risk management strategies.

Sources + Further Reading

For a deeper understanding of how SettleRisk utilizes subjective judgment committee data in its risk scoring model, refer to the following resources:

By understanding the role of subjective judgment committees and how SettleRisk's API incorporates this information, you can make more informed decisions in the complex landscape of prediction markets.