Study Reveals Only a Small Percentage of Traders Drive Accuracy in Prediction Markets

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 the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants lose money around them. 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 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 do not exhibit the same level of predictive accuracy and tend to lose money to 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. 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% consistently outperformed the benchmark, while many apparent winners were actually just lucky. The activity of skilled traders improves market accuracy, particularly in the final stages before an event's resolution. They are also the first to react to new information, such as Federal Reserve announcements or corporate earnings, while other traders show 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. Both Polymarket and Kalshi have stated that trading on non-public information is against their rules. The study highlights the risk of insider trading, citing the example of the U.S. removal of Nicolás Maduro from power in Venezuela. In the days leading up to the operation, three newly created Polymarket accounts placed unusually large bets on the event, collectively making over $630,000 when the raid occurred. While there is no evidence of wrongdoing on these accounts, the incident illustrates the potential for insider trades to move prices aggressively. The findings challenge the notion 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.