The Microstructure of Wealth Transfer in Prediction Markets
Summary
The article analyzes a large Kalshi data set to reveal a systematic wealth transfer from takers to makers driven by longshot bias and asymmetric order flow. It documents a robust maker-taker gap that varies by category and has evolved with growth in market depth, showing that efficiency is contingent on participant mix and liquidity. It also highlights a persistent YES/NO asymmetry and presents activation-like mechanisms in market design as potential explanations and mitigations.