A recent scandal involving a Green Beret arrested for betting on a classified US raid may be more than an isolated incident, as a new study suggests that a small group of informed traders, like the accused soldier, are actually the ones driving prices on prediction markets like Polymarket. The study, conducted by researchers from London Business School and Yale, analyzed over 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 the majority of price discovery, consistently predicting outcomes and moving prices in the right direction.

In contrast, the remaining 97% of traders mostly provide liquidity and generate volume, but tend to lose money to the informed minority. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, keeping all parameters the same except the direction of the trade.

The results showed that among the biggest winners, only 12% consistently outperformed the simulated benchmark, while 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 tend to move closer to the correct outcome, especially in the final stages before resolution. Furthermore, these traders are often the first to react to new information, such as Federal Reserve announcements or corporate earnings, while other traders show little consistent response.

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 cite 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 event before it occurred, collectively making over $630,000. While there is no evidence of wrongdoing in this case, the study highlights the risk of insider trading and the need for prediction markets to ensure that traders are not using non-public information to inform their decisions.

Ultimately, 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.