According to researchers from London Business School and Yale University, the ability of prediction market platforms to accurately forecast events is not due to collective wisdom, but rather driven by a small number of highly informed traders.
A paper by Roberto Gomez-Cram, Yunhan Guo, Theis Ingerslev Jensen, and Howard Kung, revised on April 25, shows that approximately 3.5% of accounts on prediction markets like Polymarket generated most of the price discovery.
The author states: "The rest of the majority do not generate accuracy; instead, they fund accuracy."
Their trades generated most of the volume but carried little information value, while their losses flowed as profits to a small group of informed participants. Therefore, the accuracy of market predictions reflects the wisdom of the informed few, not the wisdom of the crowd.
These findings are based on Polymarket trades from 2023 to 2025. The authors employed a symbolic randomization test, repeating each account’s historical trades 10,000 times to simulate profit and loss distributions.
Prediction markets became one of the most popular use cases in cryptocurrency last year and now consistently exceed $15 billion in monthly trading volume across markets ranging from sports and elections to financial performance and cultural events.
However, this growth has also been accompanied by stricter regulatory scrutiny, as outsiders worry that insider traders may be using prediction markets to convert confidential information into profits.
The author acknowledges that insider trading is a "particular area of concern" in prediction markets and notes that, due to many users operating under pseudonyms and contracts being narrowly defined around specific events, these platforms face less regulatory oversight than securities markets.
These features make prediction markets an attractive venue for trading based on private information.
The informed few earn excess profits.
The author states that informed minorities, including market makers and "high-level traders," collectively captured over 30% of the total profits from the prediction market.
The study also found that the average profit for market maker accounts was approximately $11,830.
The remaining 69% of profit-makers are "lucky winners," accounting for 29% of all accounts.
The author added that the remaining accounts were "unlucky losers" who "absorbed the entire total loss."
Earlier this month, a study by crypto analyst Andrey Sergeenkov found that only 0.015% of traders consistently generate large enough and stable profits to consider quitting their day jobs.
This conclusion is based on the number of Polymarket users who maintained a profit of $5,000 or more for four consecutive months between April 2024 and April 1, 2026.