Traders in NFL betting markets ignore 80% of new information regardless of how important the news is.
Financial theory assumes that people update their expectations quickly when new facts emerge. These prediction markets show a massive cognitive discount where participants are systematically inattentive to game-changing data. This friction is not caused by people being busy or overwhelmed by too many alerts. It is a fundamental feature of human cognition that creates a massive gap between reality and market pricing. Even when millions of dollars are on the line, the human brain struggles to map new events to real probabilities.
Unknown Rational Expectations: Evidence from NFL Prediction Markets
SSRN · 6642738
Rational expectations are well-supported in financial markets. Evidence that traders are also rationally inattentive, however, runs through a single channel: the business cycle. Whether inattention binds independently of cyclical variation-as a primitive cognitive friction mapping objective events into subjective beliefs-remains open. We answer using NFL prediction markets: binary contracts traded on Polymarket against a cash-like safe asset, benchmarked against ESPN's continuous win probability