A small slice of Polymarket traders captures most of the platform’s profits, a new academic study finds. Roughly 3% of accounts collected 27% of all dollar profits, and Wall Street competition is now narrowing that edge.
The working paper, co-authored by researchers at Yale and the London Business School, examined two years of Polymarket trades. It covered 1.72 million accounts and 210,322 markets.
Why Polymarket Traders’ Edge Is Shrinking
The authors used a statistical test that reruns each trader’s history thousands of times to separate skill from luck.
Theis Jensen is a Yale economist and co-author of the study. He expects the share of skilled traders to fall from roughly 3% to below 1% as competition increases.
He explained that more competition improves pricing.
“If you have a lot of skilled people, then they compete, and in doing so, they make prices more correct.”
Jensen, Yale School of Management
Julie Hoover, a Bank of America equity analyst, said tighter spreads make mispricing harder to find. She said smaller specialists could still hold an edge in niche markets. She added that the platform’s wide range of contracts lets specialists build deep, narrow expertise.
Jensen added that large institutions tend to avoid low-liquidity markets. Small orders there can erode an institution’s own edge, leaving room for specialists.
A Fairer Gamble for Everyone Else
Traders without a lasting edge could still benefit from more accurate pricing. Better prices reduce the odds of repeatedly taking the wrong side of a bad bet.
Federal Reserve researchers found that Kalshi’s macroeconomic contracts matched or beat standard forecasting benchmarks. Its headline inflation forecast even outperformed the Bloomberg consensus.
Greater institutional volume also expands transaction fee revenue for prediction market platforms. Better-calibrated prices can strengthen their use as hedging, forecasting, and market-data tools.
As institutional money keeps flowing in, the edge is likely to concentrate further among specialized firms. The paper’s authors say only the largest, most sophisticated funds may consistently beat the odds.
Be the first to comment