[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.

[hrimfaxi]

Platforms like polymarket can be used to bet on the outcome of sporting events. Does the fact that you are betting against another bettor change that from sports betting to a prediction market? If I am playing poker am I still gambling even if the house is just another player in the hand?

[mr_00ff00]

Yeah I guess that’s fair, but I wouldn’t say that predictions aren’t the point of the market. My point was more that the predictions must be the point, because people are paying polymarket to get that data.

They don’t make money by taking a spread, they make it by providing information.

And people bet on emotion for sure, but “wisdom of crowds” suggests that generally that will balance out to somewhat accurate odds.