Citation

Gómez-Cram, R., Guo, Y., Jensen, T. I., Kung, H. “Prediction Market Accuracy: Crowd Wisdom or Informed Minority?” SSRN 6617059 (v. 25 Apr 2026). London Business School / Yale.

Core Finding

Prediction-market accuracy is driven by a small minority of informed traders, not crowd wisdom. Using the universe of Polymarket transactions/accounts, the authors identify skilled traders — ~3% of all accounts — who generate the bulk of price discovery. Their order flow predicts future prices and final outcomes, moves prices toward the eventual outcome throughout the market’s life, and reacts to news the moment it arrives. The majority generates most of the volume but little information; their losses fund the informed minority’s profits.

Method & Contrast

  • Develops a statistical skill measure; skilled traders’ profits persist out of sample (consistent with informed trading, not luck).
  • Two hypotheses with distinct predictions: crowd wisdom (no persistent profits, equal contribution to price discovery) vs informed trading (informed traders extract from the uninformed and produce all price discovery). Data support the latter.
  • Counters the industry framing (Kalshi/Robinhood/Polymarket CEOs invoking “wisdom of the crowds”).

Connection to Wiki

See Also