Resolution Risk & Wording Arbitrage: The Hidden Edge (and Hidden Landmines)

If you trade prediction markets long enough, you’ll eventually experience the most painful loss class:

You were right about what happened. You were wrong about what the contract said.

That gap—resolution risk—is the difference between trading “the world” and trading “a legal sentence.”

This post is a practical framework for:

• identifying wording and source mismatches
• pricing resolution risk explicitly (instead of hand-waving it)
• spotting “wording arbitrage” where two markets look equivalent but are not
• avoiding the landmines that make a clean thesis untradable

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1) Resolution Risk Is Not “Rare”

Resolution risk shows up whenever the market relies on:

• ambiguous language (“announce”, “confirm”, “official”, “by end of day”)
• edge cases (delays, reversals, partial outcomes, technicalities)
• a resolution source that can lag, contradict, or update
• an oracle process that can dispute / delay / clarify

You don’t need to predict disputes to care about resolution. You need to predict what the contract will settle on.

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2) The Resolution Surface Area (What to Inspect)