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 U.S. raid may be more than an isolated incident, according to a new study. The research suggests that this individual may be part of a small group of informed traders who significantly influence prices on platforms like Polymarket, while the majority of users 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 the majority of price discovery, consistently predicting outcomes and moving prices in the right direction. In contrast, the remaining 97% of traders mostly 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, 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. Furthermore, these traders are 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 raises concerns when that information is not public or is not supposed to be. The researchers cited a concrete example involving 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 there is no evidence of wrongdoing, the incident highlights the risk of insider trades, which can move prices aggressively. Nevertheless, the study concludes that most of the time, the market's accuracy still depends on repeat traders who consistently outperform, rather than one-off bets.