Another reason to keep the stakes small is to avoid problems like the assassination market[0]. I'd rather have podunk, inaccurate prediction markets like PredictIt than one which amounts to putting massive bounties on public figures. Or incentivizing public figures to do their job badly like make a surprise change in their vote on an important bill, just to win a longshot bet.

PredictIt even used to have markets on, like, which SCOTUS justice would be the next to leave. People got paid when RBG died. That literally would've been this, if it weren't for the fact that the small investment limit kept the returns low. Realistically I don't think anybody was going to be committing assassinations just to make a thousand bucks.

The same things that keep prediction markets inaccurate keep them from causing bigger problems.

[0]https://en.wikipedia.org/wiki/Assassination_market