Time-Varying Favorite-Longshot Bias in Polymarket Weather Markets

Abstract

Prediction-market prices combine traders' judgments about future outcomes, but their errors may be concentrated in particular price ranges and change as settlement approaches. Prior cross-category evidence shows that Polymarket weather markets have larger pricing bias than other major categories, without separating low-price longshots from high-price favorites. This study compares the two ranges at different horizons in daily maximum-temperature markets. Event-level probability scores, cubic B-spline recalibration, and Buy-NO tests are used to examine the form and effect of the bias. Longshot overpricing mainly occurs at distant horizons, whereas favorite overpricing becomes much stronger during the final 1-12 hours and is nearly one order of magnitude larger. Event-level scores improve toward the daily temperature peak, while simple recalibration yields no statistically significant gains. The Buy-NO results in the corresponding time windows also show that the main pricing error is concentrated at the favorite end.