Study Reveals Only a Small Group of Informed Traders Drive Prediction Market Accuracy

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 represent an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the broader crowd incurs losses around them. The study, which analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket between 2023 and 2025, found that a mere 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 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. This approach allowed them to establish a benchmark for what each trader's profits would look like without any real edge. The findings indicate that among the biggest winners by raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance over time. The activity of skilled traders improves market accuracy, particularly in the final stages before resolution, and they are also the first to react to new information, such as Federal Reserve announcements or corporate earnings. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not public or is not supposed to be. Both Polymarket and Kalshi have stated that trading on non-public information is strictly against their rules. The study highlights the risk of insider trading, citing the example of the U.S. removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the contract asking whether Maduro would be removed, collectively making over $630,000 when the raid occurred. While insider trades are rare and concentrated in a handful of events, the market's accuracy still largely depends on repeat traders who consistently outperform rather than on one-off bets. The findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the informed traders who drive price discovery.