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 actually influence prices on platforms 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 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 distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, reversing the direction of the trades. The results showed that among the biggest winners, only 12% outperformed the simulated outcomes, 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 skilled traders in driving market accuracy. When these 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 study also raises concerns about the potential for insider trading, noting that such trades can have a significant impact on prices, even if they are rare and concentrated in specific events.