[kasey_junk]

Prediction markets as a useful tool are predicated on insider information. The punters without edge are the bait incentivizing the insiders.

And in the US prediction markets are regulated like commodities which have much more lax insider rules, because again, insider trading is the point.

[datsci_est_2015]

> Prediction markets as a useful tool are predicated on insider information. The punters without edge are the bait incentivizing the insiders.

And like any other gambling (see 1919 Black Sox), they can also incentivize behavior for actors who can influence the outcome of what’s being gambled upon.

Personally, that’s a significant enough negative externality for me to not want to live in a society where “prediction markets” are popular.

[kasey_junk]

I personally think it’s ridiculous that we have allowed these prediction markets to subvert our sports betting laws. And meaningful corruption legislation should exist to prevent government and military personnel from profiting from them.

But if you are going to allow them at all, you want as much expertise as possible in them. Sharks eating minnows is what that looks like.

[bentcorner]

Makes me wonder if there's a bet you can take on Polymarket that Polymarket will get shut down due to it negatively influencing behavior. The insider trading on that one should get interesting.

[amelius]

Will it pay out if it is shut down though?

[mr_00ff00]

1. I believe you can bet on this

2. If it’s only banned in the US, yes it pays out, you just need to get a VPN or go to another country.

Also even it’s banned everywhere, the markets are blockchain contracts so you should be able to access it without the website, which is just the frontend. (this is where my technical expertise breaks down, someone who knows blockchain is a better expert)

[venusenvy47]

Why would we want insiders to profit on a public decision like war? If some general has money on Iran's leader being taken out by March 1, he might not be acting in the best interest of the country.

https://www.bbc.com/news/articles/cjwz8051y0lo

[mr_00ff00]

The idea is that prediction markets show the “odds” of an event occurring (that’s why it’s percentages after all).

So if a war with Iran is going to happen, and so a general bets that it will, the odds will jump and go very high.

Now at least theoretically, people in the Middle East can see the high odds, and travel elsewhere.

After seeing how many people got trapped in the UAE, I might check these prediction markets in the future for similar things.

[gus_massa]

It only work if you have a "good" passport and you can pack your income source and move it (i.e. easier for a web page designer than a goat farmer).

[mr_00ff00]

Sure, but some people would get out, right?

Surely you aren’t saying that because prediction markets can’t save every single life, that it’s somehow useless to save a few.

Another example, if odds jump on a missile strike on a particular city, you might have the chance to move out of the way.

[cjrp]

For me that feels like the difference between insider trading and market manipulation.

[cjonas]

How is it useful when what we are seeing is insiders place massive bets immediately before the event resolves. Does gaining this information a few hours early provide value to society that offsets the impact of normalizing gambling and attaching incentives to bad outcomes of war, politics, etc.

[rwmj]

Can you make massive bets if there's no one to take the other side of the bet? In a prediction market that allowed insiders, if you don't have insider knowledge you shouldn't bet very much because you're probably going to lose to someone who is an insider.

[tsimionescu]

If a million people bet 5$, even if it's 50-50, there's plenty of upside for an insider to take a massive bet on the known outcome.

[rwmj]

In an iterated game, either people would be happy to lose occasionally small amounts like $5 (with the benefit to society that insider knowledge is revealed), or if they didn't like losing even small amounts they'd learn not to bet if they didn't have real insight.

[tsimionescu]

Well, look at current prediction markets, which are not theoretical and very clearly do allow insiders, with no limitations whatsoever. And people still routinely bet on things that they know insiders can control.

[watwut]

That is not true. That is not how gambling works at all.

That is how theoretical mathematical construction works. Which has nothing to do with how real world people behave in iterated gambling games. And the less you regulate what the gambling company can or can not do, the less the real world version resembles the theoretical construction.

[hrimfaxi]

Doesn't that assume that people are rational? How many gamblers have lost everything?

[gus_massa]

If the value is insider information, and assuming it's legal, wouldn't it be better if the major newspaper offer a big pile of money to insiders that leak the data? At least there will be some level of ethical checking.

[chii]

> wouldn't it be better if the major newspaper offer a big pile of money to insiders that leak the data?

so why would a newspaper pay money for information they cannot recover or monetize? Where would this money come from in the first place, because even if they wanted to do this out of altruism, they will simply run out of money after a while.

[airstrike]

This notion that price discovery is only possible with insider trading is demonstrably false yet somehow surprisingly pervasive.

[kibwen]

In the same way that the crypto hucksters were desperate to invent legitimate reasons for NFTs to have trillion-dollar valuations, pathetic gamblers are desperate to invent legitimate reasons for there to exist some non-gambling cover for the existence of predictions markets.

[hrimfaxi]

> insider trading is the point

Says who?

[Ajedi32]

It's in the name: Prediction market. The point is to predict an outcome, insiders will naturally be better at that than non-insiders.

Though I think where things start to get a bit more insidious is when the "insiders" have access not merely to inside information, but the ability to change the outcome. That type of insider trading should be banned IMO because it works against the purpose of prediction markets as a tool. (Though the extent to which banning that is possible is debatable.)

[atmavatar]

That isn't very convincing, as the stock market itself is largely a prediction market. People buy stock to bet on future success, whether that manifest in the form of stock price increases, splits, and/or dividends. It's merely a much more narrowly-focused prediction market.

For that very reason, insider knowledge, and especially the ability to influence future outcomes, become the subject of heavy regulation. And, the lack of such regulation for congressional members is also why their net worth tends to skyrocket once entering office.

[Ajedi32]

That's fair. Insofar as the purpose of the stock market is to allocate capital to companies the market predicts are most likely to succeed, you could argue that trading stocks based on insider information should be legal (though not insider trading by those with the ability to influence outcomes).

But I think the way our current system solves this is by forcing companies to disclose important insider information to shareholders all at once, rather than by letting insiders profit by leaking the information through their market transactions. (The one possibly being related to the other, because insiders who could legally profit by keeping information secret rather than disclose it would be incentivised to do so.) I don't think a similar restriction is feasible for prediction markets, because often the thing you're trying to predict is not something that can be legally cajoled into giving up its secrets.

[jpfromlondon]

>you could argue that trading stocks based on insider information should be legal

Before Salman vs US (2016) it basically was, how do you think the oracle made bank?

[myrmidon]

I'd argue that the "purpose" of the stock market is matching investors with companies that want liquidity. Allowing insider trading hurts the purpose by driving away non-insider trading participants, and it does not really help in any way.

With prediction markets, the "purpose" is information discovery, and "insider trading" actually helps (=> via information from insiders).

Disclaimer: I'm somewhat playing devils advocate here, I personally think that prediction markets are for now mostly an ineffective zero-sum game (and legalized gambling with all the drawbacks that brings).

[Joker_vD]

> I'd argue that the "purpose" of the stock market is matching investors with companies that want liquidity.

But you don't usually buy the stocks from the company itself, do you? Unless there is some shenanigans with buyouts going on...

[hrimfaxi]

Companies can issue new shares to take advantage of positive public sentiment.

[TimPC]

It's easier to define safeguards and the definition of inside information for stock markets than for prediction markets though. There is plenty of information that should ban someone from prediction markets that also wouldn't meet the definition of material non-public information.

[cleverfoo]

that's a very shallow analogy as the stock market has significantly stronger guardrails to curtain insider trading including fines and jail time these companies lack. But even if you were to bring prediction markets under the purview of the FTC, it would still not be a functioning regulatory scheme since the scope of prediction markets is just so much larger - you can bet on anything.

[hrimfaxi]

Who cares what they call themselves? They're not prediction markets, they are just gambling on events. The "point" of prediction markets is not an accurate prediction in the same sense that the "point" of sports betting isn't that your bet means the team will win.

[Ajedi32]

Betting markets are actually pretty good at predicting the outcomes of sports games. But you're correct that that's not the point of those markets; accurately predicting the outcome of a sports game has no real-world value, people are just placing bets for their personal entertainment.

Accurately predicting the outcome of a war, election, or other nationally important event though can potentially have immense value.

[hrimfaxi]

> Accurately predicting the outcome of a war, election, or other nationally important event though can potentially have immense value.

I don't contest that, but again, you haven't explained why "predictions" is the point of prediction markets. People place bets on things they want to be true as much as things they believe to be true. They can market themselves as whatever they like but no one has made a case that this is any different from sports betting.

[mr_00ff00]

It’s different because the prediction markets companies don’t make money on spreads. You aren’t betting against the house. Sports betting, every bet you take has a house edge.

Polymarket, for example, makes money on the data. So it must be worth something because people are paying for that predication data. They don’t take a slice of the winnings.

[ordinaryradical]

> Robin Hanson, the economist who’s commonly known as the godfather of modern prediction markets, thinks that using inside information to place bets like this is actually necessary for these markets to work—making “insider trading” a feature, not a bug.

> “The point of these markets is to get information, so the only reason you should ever be trading on them is if you think you have some information,” said Hanson, a professor of economics at George Mason University whose academic work inspired the founders of prediction markets Polymarket and Kalshi. “People with more information should trade more and get more money because that's how they get paid for the information they contribute.”

https://www.forbes.com/sites/aliciapark/2026/01/09/why-predi...

Seems like you should read more about these markets.

[hrimfaxi]

How is it at all a prediction if someone has insider knowledge? That's not a prediction that is knowing the facts. If I'm Trump and decide to capture Maduro tomorrow and then I bet on that happening, what did I predict? If someone close to me who knows my plans bets on it, what did they predict? That I will follow through on my word?

[kasey_junk]

You externalized the answer to the question. That’s _the point_ of prediction markets.

What you are describing is governmental corruption and that should be handled via corruption laws not insider trading laws.

[variadix]

Insiders bring information to a market. Intelligent analysis and prediction also does, but obviously insiders have special information they are incentivized to bring to the market. Most people placing these bets are simply gambling, insiders and analysts at least have rational reasons for placing bets and add information to the market.

[Terr_]

> Insiders bring information to a market [...] special information they are incentivized to bring

Simultaneously: Insiders have power to coerce an outcome, the market creates a corrupt payoff for them to abuse that power.

[baq]

disagreeing with this statement is admitting it's gambling and not a market.

[monero-xmr]

If I use a drone to look over a fence to count the amount of inputs and outputs of a factory, and only I know this, it is perfectly legal for me to trade on it. Not insider trading! I'm just a really good information-finder and I'm morally just in how clever I am at finding an edge.

If I work at the company and count the inputs and outputs, and trade on it, I am a morally bankrupt scumbag and I have hurt society and all of the traders in the market.

Hmmmmmmm

[MarkusQ]

If you work at the company you have almost certainly signed an agreement not to disclose such information; if you do so, you are violating the agreement. But that isn't insider trading.

If you hold a position of fiduciary responsibility within the company (or gain information from someone who does) that's a different matter. But the analogy there would be hacking into the company to read internal records, not just looking over a fence. in both cases, it's a crime.

[nilamo]

Yes that is correct. Or if you're a player on a team, you could just... tank a game.

[KPGv2]

This is a troll post, and I'll bite.

The reason insider trading is illegal is because it undermines confidence in the markets by establishing a pattern by which insiders with privileged, secret information leverage it to profit off people who cannot access this information.

It also incentivizes insiders to leverage their position within a company to manipulate the business in order to profit. This also undermines integrity of markets.

Your second example, setting aside all your troll bait inflammatory verbiage about moral bankruptcy, is an illustration of this risk. I don't care if it rises to the level of moral bankruptcy, it is harmful to a capitalist society in a serious way.

Your first example is a depiction of someone leveraging information that anyone can gather. It does not undermine the integrity of markets because it is just an investor acting on publicly-accessible information.

[rwmj]

Correct, but they can access the information as soon as it is revealed.

Consider the case where a company knows that the drug they are selling is dangerous but keeps it a secret. Insiders know of the dangers and so bet against the company in the market (obviously this is illegal right now). The insiders make a profit in the short term, and investors also in the short term lose out (which they were going to do anyway, the losses come sooner), but in the long term the secret information is revealed to the benefit of everybody.

[KPGv2]

I don't see how this is responsive to what I wrote. Are you arguing that insider trading is no big deal? If so, what you're actually saying is "insider trading is no big deal because eventually bad information does reach the public."

But I never said insider trading was bad because it caused people to keep information a secret. You're responding to an argument I didn't make.

[monero-xmr]

I don’t see the harm of insider trading. I would make the trades public and mark someone as an insider. The “cat and mouse” game played now leaves for endless suspicion

[hananova]

Or a reasonable door number three: Trading on it should not be allowed, without exception.