Svmuu News: A recent paper by researchers from the London Business School and Yale University points out that the accuracy of prediction markets is not mainly due to “the wisdom of crowds,” but rather driven by a small number of informed traders. The study shows that only about 3% of accounts contribute to the majority of price discovery, and these accounts are more effective at predicting outcomes, responding to news, and improving the accuracy of market pricing.
The paper also notes that the remaining majority of participants contribute most of the trading volume, but their information content is limited, and their trading losses often flow to informed traders. The study suggests that the accuracy of prediction markets is more a reflection of the “wisdom of the informed few.”