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 could be an extreme example of a small group of informed traders who actually influence prices on prediction markets like 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 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 generally do not exhibit this level of accuracy, instead providing liquidity and generating volume while often ending up on the losing side of trades. To distinguish between skilled traders and those who are simply lucky, the researchers simulated each trader's bets 10,000 times, using the same markets, moments, and dollar amounts but randomly deciding whether to buy or sell. The results showed that only 12% of the biggest winners by raw profit consistently outperformed the simulated benchmark, suggesting that many apparent winners may have simply been lucky.
The study's findings have significant implications for the functioning of prediction markets, highlighting the importance of informed traders in driving market accuracy. When skilled participants account for a larger share of trading, 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 also raises concerns about the potential for insider trading, particularly when information is not publicly available or is sensitive in nature.
The paper cites the example of the US removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the outcome before the event, collectively making over $630,000. While there is no evidence of wrongdoing in this case, the incident highlights the risks associated with insider trading and the need for prediction markets to ensure that participants are not acting on non-public information.