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 be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants end up losing money. 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 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 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, using the same markets, moments, and dollar amounts, but with the direction of the bet determined by a coin flip. The results showed that only 12% of the biggest winners by raw profit consistently outperformed the benchmark, and many apparent winners did not sustain their performance over time. The study also found that the activity of skilled traders improves market accuracy, particularly in the final stages before an event's resolution.

They are often 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 they may be acting on non-public information. The paper cites 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 trades and the need for platforms to enforce rules against trading on non-public information.

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.