When are prediction markets most helpful? Evercore ISI has a formula

• Only 8% of events on Kalshi and Polymarket clear $1 million in volume, with nearly 60% of live markets having less than $1,000 in trading volume as of the report date
• Prediction markets perform best during chaotic macro events and avoid issues like polling errors or expert bias, but can be 'contaminated' by traders motivated by entertainment or political views rather than forecasting
• Binary contracts with objective outcomes are more reliable than ambiguous questions, though oversimplified contracts may fail to capture the full complexity of real-world events

Prediction Markets: Evercore ISI Identifies Key Success Factors

Evercore ISI strategists, led by Julian Emanuel, have outlined specific conditions that make prediction markets most effective for forecasting: high trading volume, short time horizons, and simple questions with clear resolution rules.

Key Findings

Volume Matters: Only 8% of contracts on platforms Kalshi and Polymarket exceed $1 million in trading volume. Among live markets, nearly 60% have less than $1,000 in volume, while just 5.3% reach $100,000 or more. Higher-volume contracts produce more reliable probability estimates than shallow markets.

Time Sensitivity: Contracts closer to their termination date demonstrate stronger predictive accuracy compared to long-term contracts.

Critical Limitation: The strategists emphasized that prediction markets "do not discover the future so much as reveal what the crowd believes," stopping short of calling them a "north star" for forecasting.

Market Dynamics

Prediction markets excel during chaotic macro events, responding faster to real-time developments than traditional polling or expert forecasts while penalizing incorrect bets. The diversity of participants—macro traders, industry experts, and regional players—can be both an advantage and drawback, as motivations range from genuine forecasting to entertainment, hedging, or political expression, potentially "contaminating" market prices.

Infrastructure Growth: The sector experienced explosive growth following the CFTC's 2024 decision approving election-related contracts on Kalshi, with volume surging during fall 2025.

Risks Identified

• Thin markets vulnerable to manipulation by large traders
• Binary contracts may oversimplify complex events
• Ambiguous outcomes (e.g., "will a ceasefire hold?") reduce reliability
• Trader motivations beyond pure forecasting can distort prices

The analysis suggests prediction markets work best as one tool among many, particularly for near-term, high-volume contracts with objective outcomes.