My problem: I recently booked a business trip about three months out, noticing slightly too late that there's a huge event (Formula 1 race) happening in town the previous weekend and all the remotely convenient and/or comfortable hotels are asking crazy rates (US$500+).

The usual rule of thumb of booking flights and hotels is the earlier the better, since prices usually go up but rarely come down. In this case, though, I have a sneaky suspicion that hotels may be demanding too much and there may be a fire sale of unsold inventory right before the event.

So: Do hotel prices generally go down right before big events? Bonus points for answers with data instead of just speculation.

(Note: this question has been edited, as I'm more interested in the general question above than the specifics of my situation.)

Interim answer 1: I've followed simbabque's answer and booked a mildly inconvenient and mildly crappy but fully cancellable and not crazy expensive hotel to cover my ass, and will check & report back on the hotel situation before arrival.

Interim answer 2: Idly poking around, I noticed that a big chain hotel near the office that had previously been 100% full had a room free for all three nights at our normal corporate rate (~US$120). Booked! But I'll still check before arrival and report back for science.

Very overdue final update: I didn't do a very thorough check because work, but a casual browse on Google Hotels did show a bunch of hotels offering rooms at less stratospheric prices (under $300). YMMV.