Thinking about expected value vs. 'known' risk on Polymarket
Hey everyone, new to the Polymarket scene and trying to wrap my head around a few things, specifically how some of you seasoned folks approach risk. I get the basic idea of expected value when I'm looking at odds, but sometimes it feels like a really strong 'gut' feeling on a market might go against the strict EV calculation if the odds are super skewed.
For example, on some of these less liquid markets, I see situations where one side has a ridiculously high implied probability, let's say 95%, but the remaining 5% feels like it might have a higher chance than that number suggests. I know EV says to fade that 5% if it's not truly 5%, but then I'm risking a big chunk for a small potential return. How do you guys balance the strict mathematical EV with what feels like an underpriced 'tail risk' that could pay out huge, even if the odds are against it? Or do you just stick to the numbers no matter what?
That's a classic dilemma, and I think many of us have faced it. While EV is mathematically sound, it doesn't always account for the information asymmetry or the 'known' risk you mentioned, especially in less liquid markets where the odds might not fully reflect all available information.