I've only watched some prediction market news from the outside, so forgive my basic question, but are prediction markets supposed to bring in money besides having new entrants bring in cash?
I've often seen prediction markets compared to stock markets, but the stock market is generally positive-sum because you're investing money in profitable businesses that pay dividends. In contrast, if a prediction market begins with 1000 people with $1000 each (and no one else joins or brings in more money), can it ever have more than $1,000,000 in the market?
If the answer is "no, it doesn't generate money", isn't that a big problem for prediction markets as a long-term concept? It means everyone will be fighting over a limited pie, and there will be no reason for the average person to join the prediction market (they just stand to lose their money to the experts). Is this a problem holding back prediction markets now, and are there ideas to fix it?
You are right that by default prediction markets do not generate money, and this can mean traders have little incentive to trade.
Sometimes this doesn't even matter. Sports betting is very popular even though it's usually negative sum.
Otherwise, trading could be stimulated by having someone who wants to know the answer to a question provide a subsidy to the market on that question, effectively paying traders to reveal their information. The subsidy can take the form of a bot that bets at suboptimal prices, or a cash prize for the best performing trader, or many other things.
Alternately, there could be traders who want shares of YES or NO in a market as a hedge against that outcome negatively affecting their life or business, who will buy even if the EV is negative, and other traders can make money off them.
The sports betting analogy is very apt.
I would argue the negative effectives of losing big on prediction markets are still better then the negative effects of losing big on sports betting markets.