The 'Whales' betting millions on prediction markets are actually the worst traders and lose money to the small players.
March 19, 2026
Original Paper
How Wise is the Crowd? Bias and Edge in Prediction Markets
SSRN · 6322678
The Takeaway
While we usually assume the 'big money' in financial markets is the 'smart money,' this data reveals that the most capitalized players are often the most biased. It is the small, nimble traders who provide the actual accuracy in these markets, while the biggest spenders often trade against the evidence.
From the abstract
<div> Prediction markets are increasingly relied upon as real-time probability oracles, yet their predictive signals remain polluted by structural inefficiencies. While prior literature documents anomalies like the favorite-longshot bias at an aggregate level, the microstructural origins of these distortions—specifically, who generates and exploits them—remain unstudied in modern ecosystems. To investigate this, we engineer a scalable, multi-threaded data architecture capable of synchronously in