A recent scandal involving a Green Beret arrested for betting on a classified U.S. raid has highlighted a more significant issue in prediction markets.
According to a new study, this incident may be an extreme example of a small group of informed traders who drive price movements 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 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 tend to be on the losing side of trades. 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, only 12% outperformed the benchmark, and 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 stages before resolution. However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be trading on non-public information. The researchers cite 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 insider trades are rare and concentrated in specific events, the study's findings challenge the idea that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the informed traders who drive price movements.