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 this individual may be an extreme example of a small group of informed traders who drive price movements 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 between 2023 and 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 correct direction.
In contrast, the remaining 97% of traders provide liquidity and generate volume but tend to lose money to the informed minority. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, using the same markets, moments, and dollar amounts but randomly flipping the direction of the trade. 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 our understanding of prediction markets, challenging the notion that they work due to the collective knowledge of the crowd. Instead, the research suggests that the accuracy of these markets depends on the presence of informed traders who are able to drive price movements and provide valuable information to the market. The study also raises important questions about the potential risks of insider trading and the need for platforms to ensure that traders are not using non-public information to inform their decisions.