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, according to a new study. The research suggests that this individual may represent an extreme example of a small group of informed traders who significantly 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. 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 correct direction. In contrast, the remaining 97% of traders primarily provide liquidity and generate volume, but ultimately end up 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 only 12% of the biggest winners by raw profit consistently outperformed the benchmark, while many apparent winners were found to be lucky rather than skilled. The activity of skilled traders was found to improve market accuracy, with prices moving closer to the correct outcome, especially in the final stages before resolution. However, the study also raises concerns about the potential for insider trading, particularly when non-public information is involved. The researchers cite the example 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. While there is no evidence of wrongdoing in this case, the study highlights the risk of insider trades and the need for platforms to ensure that trading on non-public information is prevented.