A new academic working paper from researchers at London Business School and Yale challenges the popular belief that prediction markets succeed because of broad crowd wisdom. After examining every transaction on Polymarket between 2023 and 2025, the researchers concluded that a very small minority of users drives much of the platform's price discovery and forecasting accuracy.
The study reviewed 1.72 million accounts, 210,322 markets, and approximately $13.76 billion in trading volume. Only 3.14% of accounts qualified as 'skilled winners' whose order flows consistently predicted short-term price moves and final market outcomes. These skilled traders, together with market makers, captured more than 30% of all gains despite representing less than 3.5% of all accounts.
To test whether winning traders were genuinely talented or simply lucky, researchers ran simulations that randomly reversed buy and sell decisions 10,000 times across historical trades. The test found that only 12% of top earners overlapped with the skilled group, while approximately 60% of 'lucky winners' later slipped into losses when tested on another sample of events. Additionally, 67% of accounts labelled as unlucky or unskilled losers absorbed the platform's total losses.
The researchers also flagged 1,950 potential insider trading accounts that opened shortly before one event and became inactive after that event ended. Those accounts moved prices 7 to 12 times more per dollar than skilled traders, but the activity was too concentrated in isolated markets to explain overall market accuracy.
Polymarket is reportedly in talks to raise $400 million at a $15 billion valuation. The authors concluded that Polymarket's accuracy reflects 'the wisdom of an informed minority, not the wisdom of the crowd.'
