In traditional gambling halls, it’s common knowledge that the house always wins. On newly popular prediction markets like Kalshi and Polymarket, it’s a little different yet substantively the same: instead of the casino coming out on top, a tiny group of highly skilled traders rules the roost — their winnings subsidized by every other small-time sucker, who statistically is almost certainly you.
According to a new paper by researchers at the London Business School and Yale, prediction markets are largely dominated by the top 3.14 percent of users. On a platform like Polymarket, which has a monthly active user base of around 700,000 bettors, this means around just 21,000 highly informed gamblers are coming out ahead.
Everyone else is effectively flipping a coin at best, and flushing money down the drain at worst. “These accounts,” the researchers write, “generate most of the trading volume but do not systematically improve price accuracy. Prediction market accuracy thus reflects the wisdom of an informed minority, not the wisdom of crowds.”
The researchers indexed 1.7 million accounts across $13.76 billion in bets. Each bettor was tested to see whether their winnings were consistent. Though plenty of people won, only the 3.14 percent of users showed a predictive ability exceeding random chance, allowing them to capture over 30 percent of the available profits.
Meanwhile, a little over two-thirds of all players were net losers, functionally transferring their funds directly to the tiny cabal of predictive gurus.
The study provides some sound financial advice — that gambling is a sucker’s game — but also pokes a huge hole in the so-called “wisdom of the crowds” narrative, which is the widespread misconception that accurate predictions come from millions of people pooling their knowledge together. In reality, the crowd is funding a small club of skilled traders, plenty of whom are surely coming onto the gaming floor armed with insider information.
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