Research Reveals Only a Small Percentage of Traders Drive 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, according to a new study. The research suggests that this individual may be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants incur losses. The study, conducted by researchers from the London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025. The findings indicate that a mere 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the right direction. In contrast, the remaining 97% of traders provide liquidity and generate volume but tend to lose money in aggregate. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, reversing the direction of the trades. The results showed that among the biggest winners, only 12% 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 the first to react to new information. However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be trading on non-public information. Both Polymarket and Kalshi have strict rules against trading on non-public information, but the risk is highlighted by a concrete case: the US removal of Nicolás Maduro from power in Venezuela. In the days leading up to the operation, three newly created Polymarket accounts placed unusually large bets on a contract asking whether Maduro would be removed, collectively making over $630,000 when the raid occurred. While there is no evidence of wrongdoing, the incident underscores the potential risks associated with insider trades. The study's findings challenge the idea that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the informed traders who drive price discovery.