A recent scandal involving a Green Beret arrested for betting on a classified US raid may be more than an isolated incident, according to a new study. The research suggests that the soldier's actions may be an extreme example of a small group of informed traders who actually influence prices on Polymarket, while the majority of participants lose money. 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 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. The results showed that only 12% of the biggest winners by raw profit consistently outperformed the benchmark, while many apparent winners were simply lucky.
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 stretch before resolution. 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. The researchers highlight the risk of insider trading, citing a concrete example of three newly created Polymarket accounts that placed unusually large bets on a contract related to the US removal of Nicolás Maduro from power in Venezuela. While there is no evidence of wrongdoing, the accounts collectively made over $630,000, and two of them stopped trading entirely soon after.
The study's findings challenge the idea 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.