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 the soldier may be an extreme example of a small group of informed traders who actually influence prices on Polymarket, while the majority of traders lose money around them. 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, meaning they are the ones who move prices towards the correct outcome. These traders consistently predict outcomes and move prices in the right direction, while the remaining 97% of traders mostly do not.
The researchers used a novel approach to filter out luck from skill, rerunning each trader's bets 10,000 times with the direction of the bet determined by a coin flip. The results show that among the biggest winners by raw profit, only 12% beat 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 stretch before resolution. 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 highlight the risk of insider trading, citing a concrete case where three newly created Polymarket accounts 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. The findings challenge the idea that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the presence of informed traders.