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 largely fail to do so, instead providing liquidity and generating volume while accumulating losses. Distinguishing between skill and luck is a significant challenge, as many traders may experience substantial winnings by chance alone. To address this, the researchers simulated each trader's bets 10,000 times, reversing the direction of the trades to establish a benchmark for what their profits would look like without any real edge.
The results show 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 activity of skilled traders improves market accuracy, with prices moving closer to the correct outcome when they account for a larger share of trading. These traders are also the first to respond to new information, adjusting their positions in reaction to events like Federal Reserve announcements or corporate earnings.
However, the same expertise that makes skilled traders valuable to price discovery raises concerns when they are acting on non-public information. Both Polymarket and Kalshi have stated that trading on non-public information is strictly prohibited. The study cites the example of the U.S. removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the contract before the event, collectively making over $630,000.
While there is no evidence of wrongdoing in this case, the incident highlights the risk of insider trades, which can move prices aggressively. However, such trades are rare and concentrated in a handful of events, and the market's accuracy still relies on repeat traders who consistently outperform. The findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the informed traders who drive them.