New Study Reveals Only a Small Group of Informed Traders Drive 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, as a new study suggests it could be an extreme example of a small group of informed traders who significantly influence prices on Polymarket. The study, released as a working paper by researchers from London Business School and Yale, examined the core claim of the industry that prediction markets operate effectively due to the collective knowledge of their participants. By analyzing 1.72 million accounts and $13.76 billion in trading volume from Polymarket between 2023 and 2025, the researchers found that a mere 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the right direction. 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, keeping all factors constant except 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 indicate that the activity of skilled traders improves market accuracy, particularly in the final stages before an event's resolution, and that they are the first to react to new information. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not publicly available or is sensitive. The researchers highlight the risk of insider trading, citing a concrete example of three newly created Polymarket accounts that placed large bets on the removal of Nicolás Maduro from power in Venezuela before the operation, collectively making over $630,000. While insider trades can significantly impact prices, they are rare and concentrated in a few events, and the market's accuracy primarily relies on repeat traders who consistently outperform.