What did the study find about prediction markets like Polymarket?

The study found that a small group of informed traders drives most of the accuracy on prediction markets like Polymarket. Around 3.5% of accounts generate the bulk of price discovery. The majority of users mainly provide liquidity rather than useful information.

Why does the study reject the “wisdom of the crowd” idea?

The researchers argue prediction markets reflect the “wisdom of an informed minority,” not the crowd. Most users contribute volume but not insight. Their losses effectively fund profits for more informed traders.

Who are the “informed minority” in prediction markets?

The informed minority includes market makers and “skilled takers.” These participants use better data, timing, or strategy to trade. Together, they capture over 30% of total profits on these platforms.

How profitable are market makers on platforms like Polymarket?

Market maker accounts earned about $11,830 on average per account in the study. These players benefit from both spreads and informed positioning. Their consistent edge highlights structural advantages in these markets.

What happens to the majority of traders on prediction markets?

Most traders fall into “unlucky losers” who absorb aggregate losses. Others are “lucky winners” who profit occasionally but lack consistency. Overall, the majority underperform relative to the informed minority.

How large is the prediction market sector right now?

Prediction markets have grown rapidly, exceeding $15 billion in monthly trading volume. They cover events from politics to crypto and macro outcomes. This growth has increased both participation and scrutiny.

What are the key risks in prediction markets for traders?

Key risks include trading against better-informed participants and potential insider activity. Many users are pseudonymous, and oversight is lighter than traditional markets. This creates an uneven playing field.

Is insider trading a concern in prediction markets?

Yes, the study highlights insider trading as a “particular concern.” The structure of these markets makes them attractive for trading on private information. Limited regulation increases this risk.

Study finds prediction markets driven by informed minority

Written by BloombergPublished Apr. 27 2026

A study by researchers from London Business School and Yale University found that prediction market accuracy is driven by a small group of informed traders rather than the broader crowd.

The research shows about 3.5% of accounts on platforms like Polymarket generate most price discovery, while the majority contribute volume but little informational value.

“The remaining majority does not produce accuracy; rather, it funds it,”

The authors said, noting that losses from less-informed traders flow to a small group of skilled participants.

The findings are based on trading data from 2023 to 2025, using repeated simulations to analyse profit and loss outcomes across accounts.

Prediction markets have grown rapidly to more than $15 billion in monthly trading volume, but this expansion has drawn regulatory scrutiny over potential insider trading risks.

The study highlights that pseudonymous users and event-specific contracts make these platforms attractive for trading on private information, raising concerns about market fairness.

It also found that informed traders, including market makers and skilled takers, capture over 30% of profits, while the majority of users absorb losses, underscoring the uneven distribution of gains.