A recent scandal involving a Green Beret arrested for wagering 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 a small group of informed traders who significantly influence prices on platforms like Polymarket, while the majority of traders 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 ultimately end up on the losing side of trades against the informed minority.
To differentiate between skill and luck, the researchers simulated each trader's bets 10,000 times, keeping all parameters constant except the direction of the trade. The results showed that among the biggest winners, only 12% consistently outperformed the simulated benchmarks, while 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 activity, prices tend to move closer to the correct outcome, particularly in the final stages before resolution. However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be acting on non-public information.
The researchers highlight the risk of insider trading, citing a concrete example where three newly created accounts on Polymarket placed large bets on the removal of Nicolás Maduro from power in Venezuela, just before the operation took place. While there is no evidence of wrongdoing in this specific case, the study's findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they are driven by the actions of a small group of informed traders.