Research Reveals Only a Small Group of Informed 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, according to a new study. The research suggests that this individual may be an extreme example of a small group of informed traders who actually influence prices on 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 a mere 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 largely fail to achieve this, instead providing liquidity and generating volume while collectively losing money to 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 with the direction determined by a coin flip. This allowed them to establish a benchmark for what each trader's profits would look like without any real edge. The results show that among the biggest winners by raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance when their results were checked against a separate sample of events. The activity of skilled traders improves market accuracy, with prices moving closer to the correct outcome, especially in the final stretch before resolution. They are also the first to react to new information, such as Federal Reserve announcements or corporate earnings, while other traders exhibit 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 study highlights the risk of insider trading, citing the example of 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. 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 informed traders who drive price discovery.