Study Reveals That Only a Small Group of Informed Traders Drive Prediction Markets' Accuracy

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 responsible for driving prices on Polymarket, while the majority of participants 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, and found 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 do not exhibit this level of accuracy, instead providing liquidity and generating volume, but ultimately losing money to the informed minority. The researchers used a novel approach to distinguish between skill and luck, rerunning each trader's bets 10,000 times with the direction of the bet randomly flipped, and found that only 12% of the biggest winners by raw profit consistently outperformed the benchmark. The study's findings have significant implications for our understanding of prediction markets, suggesting that they work not because of the collective wisdom of the crowd, but rather due to the presence of a small group of informed traders who drive price discovery. Furthermore, the research highlights the risk of insider trading, which can have a disproportionate impact on market accuracy, and raises important questions about the role of non-public information in prediction markets.