Method & Sources | MacroPilot AI

Core Principle

Polymarket is a prediction market where each YES/NO contract trades between 0¢ and 100¢. The price reflects the collective implied probability that the event resolves YES. A contract at 30¢ means the market assigns a 30% probability to a YES resolution.

Our approach compares this implied probability against an independent fundamental estimate based on official data. When the gap is wide enough (≥ 8–10 percentage points) and conviction is high, a theoretical trade opportunity exists.

Gap (pp) = Market Price − Estimated Fair Value
Negative → market overprices YES → opportunity to buy NO
Positive → market underprices YES → opportunity to buy YES

Daily Analysis Process

1

Market Extraction

All US Macro markets on Polymarket are extracted daily. We retrieve the current price, expiry date, and exact contract definition.

2

Official Data Collection

For each market, we source relevant public data: BLS releases, Fed projections, nowcasting models, professional economist consensus (Philadelphia Fed SPF, Wall Street forecasters).

3

Fair Value Estimation

We build a probability distribution from available data, weighting different scenarios (base case, upside, downside) and accounting for known biases. This estimate is subjective and fallible.

4

Safety Margin

We only act when the gap exceeds a minimum threshold (typically 8–10pp) to absorb estimation uncertainty and transaction costs. The rule: buy NO if fair value < market price − margin.

5

Scoring & Ranking

Each opportunity is scored on 4 criteria: gap size, conviction level (confidence 1–10), liquidity ($24h volume), and resolution clarity (precise date and data source).

6

Position Sizing — Kelly Criterion

Stakes are sized daily using a Kelly Criterion framework. The raw Kelly fraction is computed for each position, then adjusted for liquidity and confidence before being normalized to the total portfolio budget.

f* = (p · b − q) / b
p = fair value probability of winning · q = 1 − p
b = net profit per $1 risked = (1 − cost) / cost

Three adjustments are applied to the raw Kelly fraction before allocation:

Half-Kelly (×0.5) — standard risk-management discount to reduce variance
Confidence multiplier — conf 9: ×1.15 · conf 8: ×1.0 · conf 7: ×0.75 · conf 6: ×0.5
Liquidity multiplier — high volume: ×1.0 · medium: ×0.7 · low (<$50K): ×0.2

Adjusted scores are normalized to the total portfolio budget ($1,000), rounded to the nearest $25, with a minimum of $25 per position. The portfolio is rebalanced daily as market prices move.

Data Sources

BLS — Bureau of Labor Statistics

CPI (monthly and annual inflation), monthly jobs report (NFP, U-3 unemployment rate), weekly initial claims. Official US government publications.

bls.gov →

Federal Reserve / FOMC

Rate decisions, dot plot, quarterly economic projections (SEP), FOMC minutes. CME FedWatch Tool for market-implied probabilities on Fed funds futures.

federalreserve.gov →

Philadelphia Fed — SPF

Survey of Professional Forecasters: quarterly consensus from ~40 economists on GDP, inflation, unemployment. Key institutional reference for calibrating probabilities.

philadelphiafed.org →

Cleveland Fed — Nowcasting

Near real-time inflation nowcasting models. Inflation Nowcasting and Inflation Expectations updated frequently between BLS releases.

clevelandfed.org →

NY Fed — DSGE Model

New York Fed DSGE model: recession probabilities, 4-quarter GDP growth forecasts. Updated quarterly.

newyorkfed.org →

BEA — Bureau of Economic Analysis

Quarterly GDP (advance, preliminary, final estimate), PCE price index (the Fed's preferred inflation measure). Official publications.

bea.gov →

Polymarket API

Live market prices via the public Gamma API (gamma-api.polymarket.com). Portfolio prices are loaded in real-time each time the Portfolio tab is opened.

polymarket.com →

CME FedWatch Tool

Market-implied probabilities for FOMC decisions, derived from Fed funds futures. Reference for calibrating Polymarket rate markets.

cmegroup.com →

Known Limits & Biases

Availability bias — Recent shocks (Iran war, tariffs) are overrepresented in Polymarket prices and potentially in our estimates. Markets overreact to recent news.

Estimation imprecision — "Fair value" is an opinion, not a certainty. The true confidence interval is wide (±10–15pp typically). A 10pp gap may not be actionable in practice.

Liquidity & spread — In low-volume markets (<$50K), the bid/ask spread can absorb the entire theoretical gap. Analyses always include available volume.

Resolution & exact definition — The precise contract definition (rounding, data source, date) can create ambiguities. We always verify the resolution clause before entering a position.

Statistical revisions — The BLS regularly revises its figures. A contract may resolve on the unrevised "advance" figure, which can differ from the final number.

Tail risk & exogenous events — Wars, bank failures, natural disasters are by definition unmodelable. Estimates assume no additional major exogenous shock.

Glossary

Market price Current price of the YES contract on Polymarket (0–100%). Equivalent to the collective implied probability.

Fair value Our fundamental estimate of the true probability, based on official data and economist consensus.

Gap (pp) Difference in percentage points between market price and fair value. Measures the potential opportunity.

Safety margin Minimum gap threshold required to justify a trade, typically 8–10pp. Absorbs estimation uncertainty.

Confidence (1–10) Subjective score reflecting certainty of the fundamental estimate. 8–10 = strong conviction based on solid data. 4–5 = uncertain estimate.

Unrealized P&L Profit or loss on open positions, calculated in real-time from live Polymarket prices.

Stake Position size in dollars, determined daily by the Kelly Criterion (see step 6). Total portfolio budget is $1,000. Stakes range from $25 (low-liquidity/low-confidence) to $200 (highest Kelly score). Trades are theoretical and do not constitute investment advice.

Kelly score Adjusted Kelly fraction after applying confidence and liquidity multipliers. Higher score = larger stake. Recomputed each day as market prices change.

Catalyst Next data release likely to significantly move the market price before resolution.

Disclaimer

MacroPilot AI is an academic analysis tool. Published analyses are produced for research and educational purposes and do not constitute investment advice, an offer, or a solicitation to trade in any way.

All trades on Polymarket carry risk of capital loss. The portfolio shown on this site is a theoretical paper portfolio — no real money is deployed. Estimated probabilities are subjective opinions that may be wrong, and past performance of the paper portfolio does not predict future results.

Nothing on this site accounts for your personal financial situation. Do your own research before risking capital.