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Who wins and who loses in prediction markets? Evidence from Polymarket

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Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#151

Post by sokoloff »

hammock wrote: post #137
vcf wrote: post #15

Earlier quoted context omitted.

Not meant to sound like AI, but most academic journals limit abstracts to 100 words, so they rarely feel natural... I agree: insiders are hard to study because they are finite and short-lived. We're pretty confident there are insiders out there trading on Polymarket; however, our conclusion is that they don't account for a significant fraction of the total trading gains on the platform.

This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).

Is that the case? I would expect long-term investors would make more profits from the stock market than market makers.

If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#152

Post by graemep »

vcf wrote: post #2

We study trading gains and losses on Polymarket, the largest prediction market. Using 588 million trades ($67 billion in volume), we show that the gains are highly concentrated: the top 1% of users capture 76.5% of profits. Successful traders provide liquidity using limit orders that resolve favorably relative to realized outcomes while unsuccessful traders take liquidity using market orders. Monthly performance is w…

That sounds as though the successful traders are informally acting as market makers and are rewarded for doing that.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#153

Post by dnnddidiej »

ericmcer wrote: post #113
janalsncm wrote: post #111

> We find that the most successful users traded frequently in sports markets, often for different teams (81% of the gains) Am I missing something or is this almost the whole story? Sports betting apps ban users who are too successful. Polymarket doesn’t. So if you have a killer football game prediction algorithm you’ll only be able to use it for so long on sports betting apps, but Polymarket won’t ban you. Plus the a…

I always wondered if you could compare odds on the most advanced sports betting apps and those on futures markets and exploit any big diffs between the two.

That makes you a profitable bettor, so your accounts will get restricted. Best way to make money is if you have better predictions then bet on markets like totalisers, betfair etc. not with casinos or bookmakers.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#154

Post by amelius »

nonethewiser wrote: post #94
amelius wrote: post #73

Earlier quoted context omitted.

Why? You want to earn exponentially more than other people the harder you work? Instead of just linear?

Let me be more specific. Communism constitutes one way to combat the power law via law. Not all forms of law combatting power law are communism.

Hmm, I don't follow.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#155

Post by vcf »

graemep wrote: post #152
vcf wrote: post #2

We study trading gains and losses on Polymarket, the largest prediction market. Using 588 million trades ($67 billion in volume), we show that the gains are highly concentrated: the top 1% of users capture 76.5% of profits. Successful traders provide liquidity using limit orders that resolve favorably relative to realized outcomes while unsuccessful traders take liquidity using market orders. Monthly performance is w…

That sounds as though the successful traders are informally acting as market makers and are rewarded for doing that.

Yes. It's not only that, as we also find very successful traders who take directional bets on elections and sports. But among the most successful traders, a large fraction are acting as market makers. Note that acting like one is not enough. We also find many traders acting as market makers among the least successful, yet they don't lose as much as the top winners do.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#156

Post by vcf »

sokoloff wrote: post #151
hammock wrote: post #137

Earlier quoted context omitted.

This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).

Is that the case? I would expect long-term investors would make more profits from the stock market than market makers. If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?

It's simpler when looking at prediction markets because of bounded payoffs and the zero-sum nature, so these are pure trading gains.

In equity markets, you have both the trading and investment components to account for. Market makers like Citadel don't invest; they aim to exit positions as quickly as possible to minimize risk and capital requirements. Long-term investors commit capital to risky assets and are compensated with a risk premium (expected to be positive, but it can turn out to be negative). Usually, the "cost" of liquidity paid by long-term investors is tiny related to the overall expected returns. In prediction markets, you don't have that.

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#157

Post by orsenthil »

philsquared_ wrote: post #142
orsenthil wrote: post #138

If the prediction markets are between people, why do people bet against the mostly likely outcome at all ? Real anecdote. For e.g, during Superbowl 2026. The markets were allowed bets to be placed until 6 minutes to close, when Seahawks were way ahead of New England Patriots. The probablity of Seahawks winning was almost 99% and any person who places a 1000 dollar bet will make 1100 in 6 minutes. Where is the 100 dol…

$1000 would return $1010. The money comes from people who want to close their trades early rather than wait for the market to settle. Often times no one actually takes these offers and then it just sits in the order book.

wow! excellent explanation. Thank you!

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#158

Post by zero_bias »

graemep wrote: post #152
vcf wrote: post #2

We study trading gains and losses on Polymarket, the largest prediction market. Using 588 million trades ($67 billion in volume), we show that the gains are highly concentrated: the top 1% of users capture 76.5% of profits. Successful traders provide liquidity using limit orders that resolve favorably relative to realized outcomes while unsuccessful traders take liquidity using market orders. Monthly performance is w…

That sounds as though the successful traders are informally acting as market makers and are rewarded for doing that.

Actually it’s pretty explicitly stated, polymarket even have special docs section, "market maker guide"

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#159

Post by hammock »

sokoloff wrote: post #151
hammock wrote: post #137

Earlier quoted context omitted.

This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).

Is that the case? I would expect long-term investors would make more profits from the stock market than market makers. If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?

Yes to put the other comment into different words, vast maj the excess returns (alpha as opposed to beta ), or the “slack” in markets , however you want to think of it, are picked up by market makers.

Difference between prediction markets and stock markets is prediction markets on a flat road and stock market on an uphill road

Re: Who wins and who loses in prediction markets? Evidence from Polymarket

#160

Post by hunterpayne »

achenet wrote: post #149
hunterpayne wrote: post #124

Earlier quoted context omitted.

Its a completely false dichotomy. You can have everyone choose A and still get B. The same faulty thinking always leads to populism, then extremism, then atrocity. So for the love of all that is holy, learn some economics or STFU on the topic.

Any resources you'd recommend to learn economics? I have a hard time seeing how "I'd like to live in a world where everyone is equally cared for" accidentally leads to "others must suffer for me to be better cared for than any other human who has ever lived", but then again I'm not exactly an intelligent person so I can struggle to understand these sorts of things :)

Not sure if you are serious. But consider a tragedy of the commons situation for the production of a commodity. Now consider that that commodity's price is influenced by weather. In such a situation, price will likely be volatile a lot of the time. You can mandate that your own producers follow certain laws to conserve your commons. But other places (ie governments) can choose to not follow those laws. And so you have a situation where everyone in a certain society can choose A but you still get B.

BTW, if you think that's somewhat arbitrary, I just described the global ag and fishing industries. So most food production has this quality. So any society that's largely agrarian will follow this pattern.

To start, learn about the following topics:

- Laffer curve

- Tragedy of the Commons

- Substitute products

- And of course, supply/demand curves

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