A recent scandal involving a Green Beret accused of betting on a classified US raid may be more than an isolated incident, as a new study indicates that a small group of informed traders, like the soldier, are actually responsible for driving 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, and found that a mere 3% of traders are accountable for the majority of price discovery, consistently predicting outcomes and moving prices in the right direction. The remaining 97% of traders, on the other hand, tend to lose money, providing liquidity and generating volume, but ultimately being on the wrong side of trades against the informed minority. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, and discovered that only 12% of the biggest winners by raw profit consistently outperformed the benchmark, while many apparent winners did not sustain their performance over time.
The study's findings suggest that the activity of skilled traders improves market accuracy, particularly in the final stages before an event's resolution, and that they are the first to react to new information, such as Federal Reserve announcements or corporate earnings. However, the same edge that makes skilled traders valuable to price discovery also raises concerns when that information is not publicly available or is sensitive. The paper cites 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 contract before the event, collectively making over $630,000, and then ceased trading. While insider trades are rare and concentrated in a handful of events, the study's findings challenge the notion that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the presence of informed traders.