Study Reveals Only a Tiny Fraction of Traders Drive Prediction Market Accuracy

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 represent an extreme example of a small but significant group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants incur losses. Conducted by researchers from London Business School and Yale, the study 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 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, altering only the direction of the trade. 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 underscore the importance of skilled traders in improving market accuracy, as their activity tends to move prices closer to the correct outcome, especially in the final stages before resolution. However, the same edge that makes these traders valuable to price discovery also raises concerns when they may be acting on non-public information. Both Polymarket and Kalshi have emphasized that trading on non-public information is strictly prohibited. The paper highlights a concrete example of this risk, citing the U.S. operation to remove Nicolás Maduro from power in Venezuela. In the days leading up to the event, three newly created Polymarket accounts placed unusually large bets on the contract, which ultimately yielded over $630,000 in profits. While there is no evidence of wrongdoing in this instance, the study notes that insider trades, when they occur, can move prices aggressively and are often concentrated in specific events. Nonetheless, the findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they are driven by the actions of a small, informed group of traders.