New Study Reveals That Only a Small Group of Informed Traders Drive Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for betting on a classified U.S. raid may be more than an isolated incident, according to a new study. The research, conducted by Roberto Gómez-Cram, Yunhan Guo, Theis Ingerslev Jensen, and Howard Kung of London Business School and Yale, analyzed every Polymarket trade from 2023 to 2025 and found that a mere 3% of traders are responsible for most price discovery, moving prices toward the correct outcome. These informed traders consistently predict outcomes and move prices in the right direction, while the remaining 97% of traders mostly provide liquidity and generate volume, but ultimately end up on the losing side of trades. The study used a novel approach to distinguish between skill and luck, rerunning each trader's bets 10,000 times with the direction of the bet determined by a coin flip. The results showed that only 12% of the biggest winners by raw profit consistently outperformed the benchmark, and many apparent winners did not sustain their performance over time. The activity of skilled traders improves market accuracy, particularly in the final stages before resolution, and they are also the first to react to new information. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not public or is not supposed to be. The study highlights the risk of insider trading, citing the example of the U.S. removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets before the event and collectively made over $630,000. While insider trades are rare and concentrated in a handful of events, the market's accuracy still depends on repeat traders who consistently outperform, challenging the idea that prediction markets work due to the wisdom of the crowd.