Prediction markets reflect ‘wisdom of an informed minority,’ not crowd: Study
About 3.5% of informed traders, including market makers and skilled takers, capture over 30% of profits on prediction platforms, while about 67% of users absorb the entirety of losses.
Prediction market platforms’ ability to accurately predict events is driven by a small set of highly informed traders rather than crowd-sourced wisdom, according to researchers from London Business School and Yale University.
About 3.5% of these accounts “generate the bulk of price discovery” on prediction markets like Polymarket, according to a paper by Roberto Gomez-Cram, Yunhan Guo, Theis Ingerslev Jensen and Howard Kung, which was revised April 25.
“The remaining majority does not produce accuracy; rather, it funds it,” the authors said.