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 drive prices on platforms like Polymarket, while the majority of participants incur losses. The study, conducted by researchers from London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025, and found 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 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 found that only 12% of the biggest winners by raw profit consistently outperformed the benchmark. The study's findings indicate that the activity of skilled traders improves market accuracy, particularly in the final stages before resolution, and that they are the first to react to new information. However, the same edge that makes skilled traders valuable to price discovery also raises concerns about the potential for insider trading, which can have a significant impact on prices.
The study cites the example of the US removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the event before it occurred, collectively making over $630,000. While insider trades are rare and concentrated in a handful of events, 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 presence of informed traders.