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 users incur losses. The study, conducted by researchers from the London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket between 2023 and 2025.
The findings indicate that just 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 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, 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 biggest winners by raw profit, 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 tend to move closer to the correct outcome, especially in the final stages before resolution. Furthermore, these traders are often the first to react to new information, such as Federal Reserve announcements or corporate earnings, while other traders show little consistent reaction. However, the same edge that makes skilled traders valuable to price discovery also raises concerns when they may be acting on non-public information. The researchers highlight the risk of insider trading, citing 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 event before it occurred. While there is no evidence of wrongdoing in this specific case, the study suggests that insider trades can have a significant impact on prices, moving them more aggressively per dollar than typical skilled trades. Ultimately, the findings challenge the notion that prediction markets work due to the collective knowledge of the crowd, instead suggesting that they are driven by the actions of a small group of informed traders.