The Green Beret arrested for betting on a classified US raid looked like a one-off scandal for the prediction markets. A new study suggests he may be a more worrying data point: an extreme example of the small group of informed traders who, as the soldier is accused of doing, actually move prices on the Polymarket while the crowd around them loses money.
The study, part of a working paper published this week by Roberto Gómez-Cram, Yunhan Guo, Theis Ingerslev Jensen and Howard Kung of the London Business School and Yale, directly tests the industry’s core claim that markets work because of the collective knowledge of their participants.
Using every Polymarket trade from 2023 to 2025, the authors conclude that it is indeed a small group of informed traders that move prices. The researchers analyzed 1.72 million accounts and $13.76 billion in trading volume and found that only 3% of traders account for the majority of price discovery, meaning they are the ones who move prices towards the correct outcome.
These traders consistently predict outcomes and move prices in the right direction. The remaining 97% mostly do not. They provide liquidity and generate volume, but overall they are on the losing side of trades against the informed minority whose profits come directly from these positions.
The hard part is telling skill apart from luck. With more than a million traders on Polymarket, there will be plenty of big wins just by chance.
To filter that out, the authors reran each trader’s bets 10,000 times, keeping everything the same except the direction.
Same markets, same moments, same dollar amount – but a coin change decided whether to buy or sell. It gave them a benchmark of what each trader’s profit would look like without any real benefit. If the actual results consistently beat the coin flip, that’s skill. If not, it’s luck.
The results show that among the top winners by raw profit, only 12% beat the benchmark, and many apparent winners did not stay that way: About 60% of “lucky winners” become losers when their performance is controlled against a separate sample of events.
Their activity improves the accuracy of the market. When skilled participants account for a larger share of the trade, prices move closer to the correct result, especially in the last stretch before dissolution. They are also the first to react when new information hits, shifting positions in response to events like Federal Reserve announcements or corporate earnings, while other traders show little consistent reaction.
The same edge that makes skilled traders valuable for price discovery raises a more difficult question when that information is not public or not supposed to be.
Both Polymarket and Kalshi have said that trading in non-public information is strictly against their rules.
The paper justifies that risk in a specific case: the US’s removal of Nicolás Maduro from power in Venezuela in January. In the days and hours before the operation, three newly created Polymarket accounts were bundled into a contract asking if Maduro would be removed. At the time, the market priced the odds at around 10%.
The new accounts placed unusually large bets, including orders for tens of thousands of shares, before the price moved. At the time of the raid, the accounts combined earned more than $630,000. Two stopped trading shortly after, and the third went mostly dormant. There is no evidence of any wrongdoing on these accounts.
Insider trades, when they occur, move prices even more aggressively per dollar, about seven-to-12 times more than typical skilled trades. But they are rare and concentrated in a handful of events, not the daily engine of price discovery. Most of the time, market accuracy still depends on repeat traders consistently outperforming single bets.
The results challenge the idea that prediction markets work because of crowds. They seem to work because of who is informed.
