New Study Reveals That Only a Small Percentage of Traders Contribute to Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for wagering on a classified US raid initially seemed like an isolated incident for prediction markets. However, a new study suggests that this case may be a symptom of a larger issue: a small group of informed traders who significantly influence prices on platforms like Polymarket, while the majority of participants incur losses. The study, which analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025, found that a mere 3% of traders are responsible for the majority of 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, reversing the direction of their trades. The results showed that among the biggest winners, only 12% outperformed the simulated benchmark, indicating that many apparent winners were simply lucky. The study's findings have significant implications for the functioning of prediction markets, suggesting that their accuracy is driven by the actions of a small group of informed traders, rather than the collective knowledge of the crowd. Furthermore, the research highlights the risk of insider trading, where individuals with access to non-public information can manipulate market prices for personal gain. While such incidents are rare, they can have a profound impact on market accuracy, and platforms like Polymarket and Kalshi must take steps to prevent them.