A recent scandal involving a Green Beret accused of 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 significantly influence prices on platforms like Polymarket, while the majority of participants incur losses. The study, conducted by researchers from the 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 a mere 3% of traders are responsible for most price discovery, consistently predicting outcomes and moving prices in the right direction. In contrast, the remaining 97% of traders primarily 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, reversing the direction of their trades while keeping all other factors constant. The results showed that only 12% of the biggest winners by raw profit consistently outperformed the simulated benchmark, indicating that their success was due to skill rather than luck.

Furthermore, the study found that the activity of skilled traders improves market accuracy, particularly in the final stages before resolution. They are also the first to react to new information, adjusting their positions in response to events like Federal Reserve announcements or corporate earnings. However, the same edge that makes skilled traders valuable to price discovery raises concerns when they possess non-public information. The study highlights the risk of insider trading, citing a concrete example 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 insider trades are rare and concentrated in a handful of events, they can have a significant impact on prices. The findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they are driven by the actions of a small group of informed traders.