How does settlement and resolution work, and why do rules matter more than headlines?

Prediction markets settle based on the contract's written resolution criteria, not what people "meant" or what headlines imply. A market can resolve against popular intuition if the rules are strict or the outcome is defined narrowly.

Detailed Explanation

1. Resolution criteria: Every contract has explicit rules: the source of truth, the exact definition of the outcome, the timing, and edge case handling.
2. Source of truth: Markets specify which data source (government report, official announcement, specific website) determines the outcome.
3. Timing matters: A contract may specify "by December 31 at 11:59 PM ET"—an event on January 1 doesn't count, even if it's 12:01 AM.
4. Narrow definitions: "Recession" might be defined as two consecutive quarters of negative GDP, not the popular understanding of "bad economy."

Common Scenarios

• A market resolves "No" because the official report was released one day late
• A candidate "wins" by popular perception but the market uses a specific delegate threshold
• An approval is granted but with conditions that don't meet the contract's definition of "full approval"
• Revised data changes the outcome after initial reports suggested the opposite

Exceptions & Edge Cases

• If the resolution source is ambiguous or unavailable, then the platform may use a backup source or void the contract.
• If the outcome is disputed, then resolution may be delayed while the platform investigates.
• If you're trading near expiration, then timeline risk becomes critical.
• If the contract language is unclear, then you're taking on ambiguity risk.

Practical Examples

A market asks: "Will inflation be below 3% in December?" The contract specifies CPI-U as of the January release.

• The January release shows 2.9%—market resolves "Yes"
• But in February, CPI is revised to 3.1%—the revision doesn't matter because the contract used the initial release
• Lesson: "December inflation" depends on which number and which release the contract specifies

Actionable Takeaways

• ✅ Read the exact resolution language (dates, definitions, sources)
• ✅ Identify the single authoritative source the market uses
• ✅ Model "timeline risk" (what if it happens late?)
• ✅ Avoid trading ambiguous contracts unless you're pricing the ambiguity