Study Reveals That a Small Group of Informed Traders Drives Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for betting on a classified US raid may be more than an isolated incident, as a new study suggests it could be an extreme example of the small group of informed traders who influence prices on Polymarket, while the majority of participants incur losses. The study, which analyzed 1.72 million accounts and $13.76 billion in trading volume from 2023 to 2025, found that a mere 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the correct direction. In contrast, the remaining 97% primarily provide liquidity and generate volume, but ultimately end up on the losing side of trades against the informed minority. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, and the results showed that among the biggest winners, only 12% outperformed the benchmark. The study's findings challenge the notion that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the informed traders who drive market accuracy.