New Study Reveals Only a Tiny Fraction 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 part of a small group of informed traders who significantly influence prices on platforms like Polymarket, while the majority of users incur losses. 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 right direction. In contrast, the remaining 97% of traders largely provide liquidity and generate volume but tend to be 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 randomly deciding whether to buy or sell. The results showed that among the biggest winners, only 12% consistently outperformed the simulated benchmark, and 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 move closer to the correct outcome, especially in the final stages before resolution. However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be trading on non-public information. Both Polymarket and Kalshi have strict rules against trading on non-public information, but the study highlights the risk of insider trades, which can move prices aggressively. While insider trades are rare and concentrated in specific events, the market's accuracy largely depends on repeat traders who consistently outperform rather than one-off bets. The findings challenge the notion that prediction markets work due to the collective knowledge of their participants, suggesting instead that they work because of the presence of informed traders.