Prediction markets such as Polymarket and Kalshi have proven more accurate than Wall Street analysts in forecasting corporate earnings, according to recent research. The CEO of Polymarket has described prediction markets as a "super crystal ball," but the reason for their accuracy may surprise you.
The Rise of Prediction Markets
Prediction markets allow participants to trade on real-world events, pricing the probabilities of outcomes. These markets cover politics, sports, finance, and more. Trading volume has surged, increasing 130-fold from 2024 to 2025, with monthly volume reaching $13 billion by the end of 2025. Leading platforms Polymarket and Kalshi are valued at $9 billion and $11 billion, respectively.
How Prediction Markets Work
Each market is framed around a clear Yes/No question, such as "Will Arsenal win the Premier League?" Participants buy Yes or No shares, which pay $1 if the outcome occurs. Prices reflect the market's implied probability of an event happening.
Accuracy of Prediction Markets
Polymarket CEO Shayne Coplan has called prediction markets "the most accurate thing we have as mankind right now." While this may be an exaggeration, research shows prediction markets outperform polls and experts. During the 2024 US presidential election, Polymarket and Kalshi gave Donald Trump a slight edge, while polls showed Kamala Harris ahead. Trump's victory highlighted the markets' ability to aggregate dispersed information.
A recent study by Dr. Roberto Gomez-Cram and colleagues found that one day before earnings announcements, prediction markets correctly forecast 78% of outcomes, compared to 62% for Wall Street analysts.
The Wisdom of the Informed Minority
Contrary to popular belief, the accuracy of prediction markets is not due to the "wisdom of crowds." Instead, a small, highly informed minority drives price discovery. Analyzing 1.7 million accounts and $13.7 billion in trading from 2023 to 2025, researchers found that about 3% of accounts persistently earn profits and generate the bulk of accurate prices. Their trades predict future outcomes and react to news instantly. The majority of participants generate trading volume but do not improve accuracy, and their losses fund the informed minority.
Future of Prediction Markets
Despite the myth of crowd wisdom, prediction markets offer timely forecasts across many domains. They provide real-time expectations for journalists, policymakers, companies, and investors. For financial markets, they enable trading on specific events that are otherwise difficult to isolate. As liquidity deepens and prediction markets move closer to mainstream finance, their prices may become a standard measure of uncertainty.
Dr. Roberto Gomez-Cram is assistant professor of finance at London Business School.
