Study Reveals Only a Small Percentage of Traders Contribute to Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for wagering 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, informed group of traders who drive price movements on platforms like Polymarket, while the broader crowd incurs 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 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 bet determined by a coin flip. The results showed that among the top winners by raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance over time. The study's findings highlight the importance of skilled traders in improving market accuracy, as their activity leads to prices that more closely reflect the correct outcome, particularly in the final stages before resolution. However, the research also raises concerns about the potential for insider trading, citing 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. While insider trades are rare and concentrated in a handful of events, they can have a significant impact on prices, moving them more aggressively per dollar than typical skilled trades.