A recent scandal involving a Green Beret arrested for betting on a classified US raid may be more than just an isolated incident. According to a new study, it could be an extreme example of the small group of informed traders who drive prices on platforms like Polymarket, while the majority of traders lose money around them.
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 suggest 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 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, keeping everything the same except the direction. The results showed that among the biggest winners, only 12% consistently outperformed the benchmark, while many apparent winners did not sustain their performance over time.
The study also found that when skilled traders account for a larger share of trading, prices move closer to the correct outcome, especially in the final stretch before resolution. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not public or is not supposed to be. The paper highlights the risk of 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 contract before the event. The findings challenge the idea that prediction markets work due to the collective knowledge of the crowd, instead suggesting that they work because of the informed traders who drive prices.