A recent scandal involving a Green Beret who was 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 end up losing money. The study, conducted by researchers at the London Business School and Yale, analyzed over 1.7 million accounts and $13.7 billion in trading volume on Polymarket between 2023 and 2025.
The findings indicate that just 3% of traders are responsible for the majority of price discovery, meaning they are the ones who drive prices towards the correct outcome. These traders consistently make accurate predictions and move prices in the right direction, while the remaining 97% of traders do not.
The researchers used a unique approach to distinguish between skill and luck, rerunning each trader's bets 10,000 times with the direction of the bet reversed. The results show that among the biggest winners, only 12% consistently outperformed the benchmark, and many apparent winners did not sustain their performance over time.
The activity of skilled traders improves market accuracy, particularly in the final stages before an event is resolved. They are also the first to react to new information, such as Federal Reserve announcements or corporate earnings reports.
However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not publicly available. The study highlights the risk of insider trading, citing a concrete example of three newly created Polymarket accounts that placed large bets on the removal of Nicolás Maduro from power in Venezuela before the operation took place. The accounts collectively made over $630,000, and two of them stopped trading shortly after. While there is no evidence of wrongdoing, the incident underscores the potential risks associated with insider trading.
The findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants. Instead, they suggest that it is the informed traders who drive market accuracy.