Study Reveals Only a Small Percentage of Traders Contribute to Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for betting on a classified US raid may be more than an isolated incident, as a new study suggests that it could be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of traders 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, and found 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, and discovered that only 12% of the biggest winners by raw profit consistently outperformed the benchmark, while many apparent winners did not sustain their performance over time. The findings indicate that the activity of skilled traders improves market accuracy, particularly in the final stages before resolution, and that they are the first to react to new information, such as Federal Reserve announcements or corporate earnings. However, the same edge that makes skilled traders valuable to price discovery also raises concerns when they possess non-public information, as highlighted by the case of the US removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the event before it occurred, collectively making over $630,000. The study's results challenge the notion that prediction markets work due to the collective knowledge of the crowd, instead suggesting that they rely on the informed minority.