Four common data errors that produce false arbitrage signals in prediction markets

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A researcher auditing order-book and oracle data from prediction markets Polymarket and Kalshi set out to find cross-venue arbitrage opportunities but repeatedly found flawed results caused by data misreads. One key error involved Polymarket's order book returning ask prices in descending order, meaning the first entry is the worst price, not the best, causing silent but plausible miscalculations. A second mistake was comparing only top-of-book prices rather than calculating the average fill price across the order ladder, which on thin markets can exceed the entire claimed edge. Both venues also charge takers a variance-shaped fee that peaks at 50/50 markets, meaning apparent spreads can be entirely wiped out once fees are properly accounted for. A fourth error emerged in model-free arbitrage scanning, where logical constraints across related market outcomes appeared violated until payoff structures were correctly mapped using bitmasks over an enumerated state space.

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