A recent scandal involving a Green Beret arrested for betting 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 actually influence prices on platforms like Polymarket, while the majority of participants 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 between 2023 and 2025. The findings indicate that just 3% of traders are responsible for most price discovery, consistently predicting outcomes and moving prices in the correct direction.

In contrast, the remaining 97% of traders 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, using the same markets, moments, and dollar amounts but randomly deciding whether to buy or sell.

The results showed that among the biggest winners, only 12% consistently outperformed the simulated benchmarks, suggesting that many apparent winners may have simply been lucky. The study also found that when skilled traders account for a larger share of trading, prices tend to move closer to the correct outcome, especially in the final stages before resolution.

However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be trading on non-public information. The researchers highlight a specific case where three newly created Polymarket accounts placed large bets on a contract related to the US removal of Nicolás Maduro from power in Venezuela, collectively making over $630,000. While there is no evidence of wrongdoing, the incident underscores the risk of insider trading in prediction markets. Ultimately, the study challenges 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.