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 represent an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of users 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 correct 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, using the same markets, moments, and dollar amounts, but with the direction of the trade determined by a coin flip. The results showed that among the biggest winners by raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance over time.
The study's findings have significant implications for the functioning of prediction markets, suggesting that the accuracy of these markets is driven by the activity of skilled traders, who are able to react quickly to new information and shift their positions accordingly. However, this also raises concerns about the potential for insider trading and the use of non-public information, which could undermine the integrity of these markets.