A Yale study reveals significant concentration in Polymarket prediction markets, where 3% of traders captured 27% of all dollar profits. According to the working paper co-authored by Yale and London Business School researchers, the study examined 1.72 million accounts and 210,322 markets over two years. The research used statistical tests that rerun each trader's history thousands of times to separate skill from luck, providing a more accurate assessment of market dynamics. The study analyzed $13.76 billion worth of Polymarket trades, demonstrating the substantial scale of the platform's trading activity.
Yale economist Theis Jensen expects the share of skilled traders to decline significantly as competition intensifies. As reported by the study, Jensen anticipates the skilled trader share will fall from roughly 3% to below 1% as market competition increases. He explained that increased competition improves pricing accuracy, stating that "if you have a lot of skilled people, then they compete, and in doing so, they make prices more correct." Bank of America analyst Julie Hoover noted that tighter spreads make mispricing harder to identify, though smaller specialists may still maintain edges in niche markets. As more institutions chase the same discrepancies, prices adjust faster and the available edge becomes scarcer.
Skilled accounts earned consistent profits by reacting more quickly to publicly available news, arbitraging inconsistent pricing across related contracts and trading against behavioral errors. However, as competition intensifies, strategies that depend on wide spreads and straightforward arbitrage across related contracts may find it more difficult to profit. "It's harder as markets get more efficient and spreads get tighter. It's going to be harder to find these mispricing and arbitrage opportunities," Hoover told CNBC. The platform's wide range of contracts allows specialists to build deep, narrow expertise in specific areas, with Federal Reserve researchers finding that Kalshi's macroeconomic contracts matched or beat standard forecasting benchmarks, with headline inflation forecasts even outperforming the Bloomberg consensus.
As institutional money continues flowing into prediction markets, the study indicates that only the largest, most sophisticated funds may consistently beat the odds. "I think it's only going to be the very, very best — say hedge funds — that are able to beat prediction markets," Jensen said. The maturation of prediction markets could make them more of a "fair gamble" for participants, with quoted prices more closely reflecting the risks they are taking. While the professionalization of prediction markets comes as a mixed bag for users, there's a clear benefit for platforms - greater institutional trading volume can expand transaction fee opportunities, while better-calibrated prices can strengthen the appeal of event contracts as hedging, forecasting and market-data tools.
