Written by Brayden Lindrea, Staff Writer. Reviewed by Felix Ng, Staff Editor. 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 most of the 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.
“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 Polymarket trades between 2023 and 2025. The authors used a sign-randomization test that repeated each account’s past trades 10,000 times to simulate profit-and-loss distributions.
Prediction markets became one of crypto’s hottest use cases last year and now consistently record more than $15 billion in monthly trading volume across markets covering everything from sports and elections to financial results and cultural events.
However, that rise has been accompanied by increased regulatory scrutiny, driven by concerns that insider traders may be using prediction markets to turn confidential information into profits.
The authors acknowledged that insider trading is a “particular concern” in prediction markets, noting that the platforms face less regulatory oversight than securities markets because many users are pseudonymous and contracts are narrowly defined around specific events.
“These features make prediction markets an attractive venue for trading on private information.”
The ‘informed minority’ makes outsized profits
The authors said the informed minority comprises market makers and “skilled takers,” which collectively take home “over 30% of total gains” on prediction markets.
The study also found that market maker accounts earned about $11,830 on average per account.
The other 69% of profit-takers are the “lucky winners,” who account for 29% of all accounts.
The remaining accounts are the “unlucky losers” who “absorb the entirety of aggregate losses,” the authors added.
Related: Three Polymarket traders made timely bets on US-Iran ceasefire
Earlier this month, a research study by crypto analyst Andrey Sergeenkov found that just 0.015% of traders make profits large and consistent enough to entertain walking away from their day job.
That conclusion was based on the number of Polymarket users who sustained a profit of $5,000 or more over four consecutive months between April 2024 and April 1, 2026.
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