# Expected Value Is the Only Number That Matters in Prediction Markets *By Benny Ricciardi, FSWA Award Winner · Published Author · Ran 4Deep Sports · Led FTN Marketing · Traded Bonds on Wall Street — The 7 Oracles at PredictionMarketsPicks* Every prediction market trade is a probability call. If you're not calculating expected value before you click, you're guessing. Here's the framework that turns a Kalshi price into a trade signal. - Source: https://predictionmarketspicks.com/articles/expected-value-prediction-markets - Published: 2026-03-18 --- *A plain-English introduction. For the exact formula the calculator runs, the normalization choice behind it, and why the threshold sits where it does, read [how we compute edge](https://predictionmarketspicks.com/articles/ev-calculator-how-we-compute-prediction-market-edge).* ## The Short Version - Expected value is the **probability-weighted average** of what a contract returns. - A contract is worth taking when **your probability and the market's disagree** by more than your estimate's error bar. - The three signals are **BUY, SELL, SKIP** — and SKIP is the most common correct answer. - Positive EV is a **precondition, not a decision**: it ignores fees and says nothing about size. - The whole thing rests on your probability estimate, which is **the only genuinely hard input**. ## The Gap Is the Entire Game The market is pricing a Fed rate cut at 32 cents. You think the real probability is 42%. That gap is the trade. Everything else — the news flow, the talking heads, the chart patterns — is noise until you run it through expected value. Here is the math. If you pay 32 cents for a contract you believe is worth 42 cents, your edge is 31.25%. For every dollar you put into this contract, you expect $1.3125 back over the long run. Bond desks would mortgage the building for that spread. If you are not calculating this number before you trade, you are not investing. You are guessing. ## What Expected Value Actually Means Expected value is the probability-weighted average of all possible outcomes. For a binary contract, the math is clean: **EV = (your probability × payout) − (1 − your probability) × cost** A YES contract on Kalshi pays $1.00 if it resolves YES and $0 if it resolves NO. Buy at 32 cents with a true probability of 42%: EV = (0.42 × $1.00) − (0.58 × $0.32) = $0.420 − $0.186 = **+$0.234 per share** That is a trade, not a close call. ## The Three Signals: BUY, SELL, SKIP Every market price sits in one of three zones relative to your estimate. **BUY** — your probability is meaningfully above the market price. The market is underpricing the event. **SELL** — your probability is meaningfully below the price. The market is overpricing it; the NO side is the position. **SKIP** — the gap is inside the error bar of your own estimate. This is the most common correct answer, and the discipline to accept it is most of what separates a trader from a participant. ## The Three Things It Does Not Settle Positive expected value is where the analysis starts. **Your probability might be wrong.** The formula treats your number as fact, and it is the one input the arithmetic cannot check. [Where that estimate comes from](https://predictionmarketspicks.com/articles/where-your-probability-estimate-comes-from) — base rates first, evidence weighted by how diagnostic it actually is — decides whether anything downstream means anything. **Fees are not in the number.** Kalshi's trading fee peaks on contracts near 50¢ and, as a share of price, bites hardest on cheap ones. [The real breakeven](https://predictionmarketspicks.com/articles/ev-after-kalshi-fees-the-real-breakeven) is the price you paid plus the fee you paid, and a thin edge can be spent entirely on entry. **Edge is not position size.** A +40% edge does not mean 40% of your account. [EV and Kelly answer different questions](https://predictionmarketspicks.com/articles/ev-vs-kelly-when-to-use-which), and confusing them is how an account with a genuine edge still goes to zero. ## The Discipline Habit Run the number before every position. Not after, when you are looking for a reason — before, when it can still talk you out of the trade. Most contracts you look at will come back SKIP. That is the system working. The edge is not in trading more; it is in trading only when the gap is real, sized to what the gap is worth. ## Use The Tool [The EV Calculator](https://predictionmarketspicks.com/tools/ev-calculator) is free and needs no account. Enter a Kalshi or Polymarket price and your probability; it returns the edge and the signal. [Run the EV Calculator →](https://predictionmarketspicks.com/tools/ev-calculator) *Educational analysis, not financial advice. Trade responsibly.* --- ## Disclosure PredictionMarketsPicks publishes analysis of CFTC-regulated event contracts. Nothing here is financial advice and every position carries risk. Links to Kalshi, DraftKings, FanDuel, Fanatics, Polymarket in this article are referral links marked "sponsored" — we may be paid if you open an account. It costs you nothing and never changes what the model says.