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 be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants lose money around them.
The study, which analyzed over 1.7 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025, found that a mere 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 do not exhibit this level of predictive accuracy, instead providing liquidity and generating volume, but ultimately losing money to the informed minority. The researchers used a rigorous methodology to distinguish between skill and luck, rerunning each trader's bets 10,000 times with the direction of the bet randomized.
The results showed that among the biggest winners, only 12% consistently outperformed the benchmark, while many apparent winners did not sustain their performance over time. The activity of skilled traders was found to improve market accuracy, with prices moving closer to the correct outcome, especially in the final stretch before resolution. These traders were also the first to react to new information, such as Federal Reserve announcements or corporate earnings. However, the study raises important questions about the use of non-public information in trading, which is strictly against the rules of platforms like Polymarket and Kalshi.
The research highlights the risk of insider trades, which can move prices aggressively, but notes that these events are rare and concentrated in a handful of instances, rather than being the primary driver of price discovery. Overall, the 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 well-informed traders.