Resolution Criteria

#Definition

Resolution criteria are the precise rules that determine how a prediction market's outcome is decided. They specify what counts as "Yes" versus "No," which data sources are authoritative, what happens in edge cases, and exactly when and how the market will be settled.

Clear resolution criteria are essential for prediction markets to function. Without them, traders cannot accurately price risk because they don't know exactly what they're betting on. Ambiguous criteria lead to disputes, manipulation opportunities, and loss of trust in market integrity.

#Why It Matters in Prediction Markets

Resolution criteria are the foundation of market integrity:

Pricing accuracy

Traders can only price risk correctly if they know exactly what outcome they're betting on. "Will it rain?" is not tradeable; "Will the National Weather Service report measurable precipitation (≥0.01 inches) at Central Park station on June 15, 2024?" is tradeable.

Dispute prevention

Most market disputes stem from ambiguous resolution criteria. Clear, exhaustive criteria prevent arguments about what should have happened by specifying in advance what will happen.

Manipulation resistance

Vague criteria create opportunities for manipulation. If "success" isn't defined, someone might influence how "success" is interpreted rather than the underlying event.

Legal enforceability

On regulated platforms, resolution criteria function like contract terms. Courts and regulators need clear criteria to adjudicate disputes.

#How It Works

#Components of Resolution Criteria

Well-written resolution criteria include:

The core question

What event or outcome is being predicted? This must be binary or categorical with clear boundaries.

Resolution source

The authoritative data source for determining the outcome. This might be:

• A specific website or API
• An official government publication
• A news organization's official call
• An oracle system

Timing specification

• When does the event window close?
• What time zone applies?
• When will resolution occur?
• What happens if the event is delayed?

Edge case handling

• What if the resolution source is unavailable?
• What if the event is cancelled?
• What if results are contested or revised?
• What constitutes a "tie" or ambiguous outcome?

#Examples of Good vs. Poor Criteria

Poor criteria:

"Will Bitcoin go up?"

Problems: Go up from when? By how much? On what exchange? By what date?

Good criteria:

"Will the price of Bitcoin (BTC) on Coinbase Pro exceed $100,000.00 USD at any point between 12:00:00 AM UTC on January 1, 2025 and 11:59:59 PM UTC on December 31, 2025? Resolution source: Coinbase Pro BTC/USD trading pair. Market resolves Yes if the high price during this period reaches or exceeds$100,000.00; otherwise resolves No."

#Numerical Example

Consider a market on unemployment:

Market question: "Will U.S. unemployment fall below 4% in Q2 2024?"

Resolution criteria:

• Metric: U-3 unemployment rate (seasonally adjusted)
• Source: Bureau of Labor Statistics Employment Situation report
• Timing: First official release for any month in Q2 (April, May, or June 2024)
• Threshold: Below 4.00% (3.99% or lower resolves Yes; 4.00% resolves No)
• Revisions: Market resolves based on first release, not subsequent revisions
• Edge case: If BLS methodology changes mid-quarter, platform administrators determine resolution

The criteria remove ambiguity about exactly what "unemployment below 4%" means in this context.

#Examples

#Example 1: Election Market

Question: "Will Candidate X win the presidential election?"

Strong resolution criteria:

• Resolution source: Associated Press election call
• Timing: Resolves when AP calls the race, regardless of official certification
• Edge cases: If AP retracts its call, market remains resolved based on original call. If AP never calls the race by inauguration day, resolves based on who is sworn in.

#Example 2: Sports Outcome

Question: "Will Team A win the championship?"

Strong resolution criteria:

• Resolution source: Official league results at [league website URL]
• Timing: Resolves within 24 hours of game conclusion
• Edge cases: Overtime counts. If game is cancelled/forfeited, market resolves based on official league determination. Subsequent vacated wins don't change resolution.

#Example 3: Economic Indicator

Question: "Will the Fed raise rates at the September meeting?"

Strong resolution criteria:

• Resolution source: Federal Reserve official press release
• Definition of "raise": Federal Funds target rate upper bound increases by any amount (≥0.25 basis points)
• Timing: Resolves based on announcement following the September FOMC meeting
• Edge case: Emergency inter-meeting rate changes before September don't count; only the scheduled September meeting decision matters.

#Example 4: Subjective Outcome

Question: "Will the product launch be successful?"

Strong resolution criteria (for a subjective market):

• Success defined as: Revenue exceeds $1M in first 30 days AND user rating averages 4.0+ stars on app stores
• Sources: Company earnings report (revenue), App Store and Google Play (ratings)
• Timing: 35 days after launch to allow for data collection
• Both conditions must be met for Yes resolution

#Risks, Pitfalls, and Misunderstandings

Assuming criteria are complete

Even well-written criteria may miss edge cases. Events can unfold in ways no one anticipated. Review criteria for gaps before taking large positions.

Ignoring fine print

Many traders skim criteria and miss crucial details. Time zones, exact thresholds, and specific source designations matter enormously.

Confusing market resolution with event outcome

Markets resolve based on specified sources, not "reality." If the source reports incorrectly, the market still resolves based on that report. You're betting on what the source will say, not necessarily what happened.

Revisions and updates

Many criteria specify "first release" values to avoid ambiguity from revisions. This means a market might resolve based on a number that's later corrected.

Time zone confusion

A market closing at "midnight December 31" could mean different times depending on the time zone. Always check the specified time zone.

Relying on defunct sources

Resolution sources can disappear. If a specified website goes offline, resolution may depend on fallback procedures or administrator judgment.

#Practical Tips for Traders

• Read criteria thoroughly before trading: Never trade a market without understanding exactly how it will resolve

• Check the resolution source yourself: Verify the source exists, is accessible, and provides the data type specified

• Identify potential edge cases: Ask "What could happen that these criteria don't address?" Large positions warrant more scrutiny

• Note time zones and deadlines: Calendar important dates with correct time zones to avoid surprises

• Prefer markets with clear criteria: If criteria seem ambiguous, either avoid the market or price in resolution risk

• Save criteria snapshots: Platform terms can change; screenshot criteria for important positions

• Factor resolution uncertainty into pricing: If there's a 5% chance of ambiguous resolution, that affects the effective odds

#Ambiguity Checklist: Before You Trade

1. Time: Is the deadline clear? (e.g., "by 11:59 PM ET" vs "by end of day")
2. Source: Is the primary source reliable? Is there a backup source?
3. Definitions: Are key terms defined? (e.g., Does "Recession" mean 2 quarters of negative GDP or the NBER declaration?)
4. Edge Cases: What happens if the event is cancelled or postponed?

If any of these are missing, the market is high-risk.

#Ambiguity Decision Tree

#Related Terms

• Resolution
• Oracle
• Contract
• Binary Market
• Prediction Market
• Governance

#FAQ

#What happens if resolution criteria are ambiguous?

Different platforms handle this differently. Centralized platforms typically have administrators make judgment calls. Decentralized platforms may use governance votes or oracle dispute mechanisms. In extreme cases, markets may be voided and positions refunded.

#Can resolution criteria change after trading begins?

Generally, no. Criteria should be fixed at market creation. However, platforms sometimes update criteria to correct errors or address unforeseen circumstances. Reputable platforms notify traders of changes and may allow position exits before changes take effect.

#Who writes resolution criteria?

On centralized platforms, staff create markets and write criteria. On decentralized platforms, anyone may create markets, leading to varying quality. Some platforms use templates to ensure consistency; others rely on community review.

#What if the resolution source becomes unavailable?

Well-written criteria include fallback sources or procedures. If not specified, platform administrators typically determine resolution using the most comparable available source. This is one reason to prefer markets with explicit fallback provisions.

#How do I dispute a resolution I disagree with?

Dispute mechanisms vary by platform. Polymarket uses UMA's optimistic oracle, where disputes trigger token-holder votes. Kalshi has internal review processes. Read platform documentation to understand your options before trading.