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 a small group of informed traders who significantly influence 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.
The findings indicate that just 3% of traders are responsible for most 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 tend to be 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, reversing the direction of the trades.
The results showed that among the biggest winners, only 12% consistently outperformed the simulated results, suggesting that many apparent winners may have simply been lucky. The study also found that when skilled traders account for a larger share of trading, market accuracy improves, particularly in the final stages before an event's resolution.
Furthermore, these traders tend to react quickly to new information, such as Federal Reserve announcements or corporate earnings, whereas other traders exhibit little consistent reaction. However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be acting on non-public information.
The researchers point to a specific example, where three newly created Polymarket accounts placed large bets on the removal of Nicolás Maduro from power in Venezuela, just before the operation. While there is no evidence of wrongdoing, the incident highlights the risk of insider trades, which can move prices aggressively.
The study's findings challenge the notion that prediction markets work due to the collective knowledge of their participants, instead suggesting that they are driven by a small group of informed traders.