Prediction markets derive their forecasting accuracy from a small group of highly informed traders, not collective crowd wisdom, according to researchers from London Business School and Yale University.
A study by Roberto Gomez-Cram, Yunhan Guo, Theis Ingerslev Jensen and Howard Kung, revised on April 25, found that roughly 3.5% of accounts are responsible for most price discovery on platforms such as Polymarket.
“The remaining majority does not generate accuracy — it effectively finances it,” the authors said.
“Their trades generate most of the volume, but little of the information, and their losses flow as profits to the informed minority. Prediction market accuracy thus reflects the wisdom of an informed minority, not the wisdom of the crowd.”
The findings are based on trading activity on Polymarket between 2023 and 2025. To analyze performance, the researchers used a sign-randomization test, repeating each account’s historical trades 10,000 times to simulate potential profit-and-loss outcomes.
Prediction markets emerged as one of crypto’s fastest-growing use cases last year and now regularly see more than $15 billion in monthly trading volume, spanning events such as sports, elections, financial results and cultural moments.
That growth has also drawn closer regulatory scrutiny, fueled by concerns that insider participants could exploit non-public information for profit.
The authors noted that insider trading remains a “particular concern” in prediction markets, pointing out that these platforms face lighter oversight than traditional securities markets, partly because many users operate pseudonymously and contracts are tightly tied to specific events.
“These features make prediction markets an attractive venue for trading on private information.”
‘Informed minority’ captures outsized profits
The researchers found that the informed minority—made up of market makers and “skilled takers”—accounts for more than 30% of total gains on prediction markets.
On average, market maker accounts earned around $11,830 each, according to the study.
Meanwhile, about 69% of profit-generating participants fall into the category of “lucky winners,” representing roughly 29% of all accounts.
The rest are classified as “unlucky losers,” who collectively absorb the entirety of overall losses, the authors said.
Separate research by crypto analyst Andrey Sergeenkov earlier this month found that only 0.015% of traders generate profits large and consistent enough to consider leaving their day jobs.
That estimate was based on Polymarket users who maintained profits of at least $5,000 over four consecutive months between April 2024 and April 1, 2026.
