Study Reveals Only a Small Fraction of Traders Drive Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for betting on a classified U.S. raid may be more than an isolated incident, as a new study suggests it could be an extreme example of the small group of informed traders who drive 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 most price discovery, consistently predicting outcomes and moving prices in the right 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, and found that only 12% of the biggest winners by raw profit consistently outperformed the benchmark. The study's 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. However, the same edge that makes skilled traders valuable to price discovery also raises concerns when that information is not public or is not supposed to be. The researchers highlight the risk of insider trading, citing a concrete example of three newly created Polymarket accounts that placed unusually large bets on a contract related to the U.S. removal of Nicolás Maduro from power in Venezuela, collectively making over $630,000. While insider trades are rare and concentrated in a handful of events, the study's findings challenge the idea that prediction markets work due to the collective knowledge of their participants, and instead suggest that they work because of the informed traders who drive prices.