“prediction markets work because a tiny informed minority exploits the uninformed majority”
Empirical paper finding that prediction market accuracy is not the wisdom of crowds. Roughly 3% of accounts drive most price discovery: their trades anticipate future prices, respond to news immediately, and improve calibration across a market's lifecycle. The remaining accounts contribute volume and liquidity but minimal information, and their losses fund the informed minority. Reframes the standard story about why prediction markets work and has implications for platform design, surveillance, and how to credibly market accuracy.
Extensive technical background assumed
Platforms mentioned: Polymarket