A recent scandal involving a Green Beret arrested for betting on a classified U.S. 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 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 be on the losing side of trades. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, reversing the direction of the trades. The results show that only 12% of the biggest winners by raw profit consistently outperformed the simulated results, suggesting that the majority of traders rely on luck rather than skill.
The study's findings have significant implications for the industry, challenging the notion that prediction markets work due to the collective knowledge of their participants. Instead, the research suggests that the accuracy of these markets depends on the presence of informed traders who consistently outperform the rest.