A recent scandal involving a Green Beret who allegedly bet on a classified U.S. raid using a prediction market may be more than an isolated incident.
New research suggests that this individual may be part of a small but significant group of traders who possess insider information and actually influence market prices, while the broader crowd incurs losses. The study, conducted by researchers from the London Business School and Yale, analyzed data from over 1.72 million accounts and $13.76 billion in trading volume on Polymarket between 2023 and 2025. The findings indicate that a mere 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and driving prices in the right direction. In contrast, the remaining 97% of traders tend to lose money, providing liquidity and generating volume but ultimately being on the wrong 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 their trades while keeping all other factors constant. This approach allowed them to establish a benchmark for what each trader's profits would look like without any real edge. The results show that among the biggest winners, only 12% 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's resolution. They are also the first to respond to new information, adjusting their positions in response to events like Federal Reserve announcements or corporate earnings.
However, the same edge that makes skilled traders valuable to price discovery raises concerns when they possess non-public information. Both Polymarket and Kalshi have explicitly prohibited trading on non-public information, but the risk remains. The study cites the example of the U.S.
removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the contract before the event, collectively making over $630,000. While there is no evidence of wrongdoing in this case, insider trades can have a significant impact on market prices. The findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants.
Instead, they suggest that the accuracy of these markets depends on the presence of informed traders who consistently outperform the crowd.