A recent scandal involving a Green Beret betting on a classified US raid may be more than an isolated incident, as a new study suggests it could represent an extreme example of informed traders who significantly influence prices in prediction markets, such as 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. The findings indicate 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 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 with the direction 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's findings have significant implications for the understanding of prediction markets, suggesting that their accuracy is driven by a small group of skilled traders rather than the collective knowledge of the crowd. The research also highlights the risks associated with insider trading, which can have a disproportionate impact on market prices. Ultimately, the study challenges the conventional wisdom that prediction markets work due to the wisdom of the crowd, instead proposing that they are driven by the informed decisions of a select group of traders.