[miki123211]

The purpose of any price-based system is to communicate knowledge, not necessarily insider knowledge.

There are actually two theories on insider knowledge. One states that allowing insider trading is beneficial, as it allows prices to better match the underlying reality, the other states that this discourages non-insider trading, which actually makes the prices worse. Stock markets lean heavily towards the second theory, while prediction markets seem to be leaning towards the first.

[TeMPOraL]

Why would encouraging non-insider training be desirable in the first place, other than to create a more high-status form of gambling, with higher spouse acceptance factor than smoke-filled room poker games? People with no inside knowledge[0] are just trading on vibes, how is that useful for the economy?

--

[0] - Or external knowledge, but actual knowledge - thinking of hedge funds stalking CEOs as they fly in private jets, or counting cars in parking lots from satellite photos, to get some probability estimates on factors actually relevant to the performance of a business and possible future events.

[jfengel]

The stock market wasn't designed to be gambling. You're buying a piece of a company. They want people to come so they can raise money for expanding businesses. If insider trading benefits some at the expense of others, people won't come.

Obviously it has come a long way from that, and the markets have become more like gambling. You could probably allow insider trading at this point and the system would continue just fine.

[efromvt]

Hmm yeah it depends on your definition of insider. If you assume all raw information is public-ish, a market can reward those who can synthesize/operate on that knowledge to predict better. (The cars in the lot, etc. there is friction to this discovery; the knowledge can be communicated to others through the market after discovery to profit off the initial cost of discovery). There is symmetric competition to some degree. If you have true non public knowledge (I’m going to say something to tank the stock on this date) then you are purely extracting value from others because you will always win; they will never have that info and the incentive for anyone else to participate in price discovery would go away.

[naniwaduni]

Stocks are a financing mechanism. They're useful for the economy independent of the price discovery aspect in the much the same ways that lending is, except that instead of receiving an obligation of future payment you're compensated on vibes.

[dasudasu]

Non-insider trading is liquidity. That’s why people pay for retail trading volume (payment for order flow). Not because of nefarious reasons. Just because it represents liquidity. With no liquidity it’s impossible to enter or exit trades efficiently.

[jfengel]

Though at this point volume is far higher than needed for liquidity. We do not need companies holding stocks for a millisecond in order to squeeze out arbitrage, and we do not need day traders hoping to arbitrage noise.

The stock market would not be noticeably less liquid if people had to hold stocks for 24 hours, but volume would drop like a rock.

[_cadp]

>the other states that this discourages non-insider trading, which actually makes the prices worse

This theory is fundamentally not credible, the other side of any trade you make on the stock market is essentially always going to be vastly more sophisticated than you. Insider trading makes zero difference to the end-user.

The credible argument against insider trading is that it's a form of theft. You are making trades based on information which does not belong to you, and which you have an obvious duty to protect. You are essentially stealing from the people you work for.

[Muromec]

I would say corruption and not theft

[jfengel]

Stock markets also want to keep executives honest. When the insider can affect the outcome, it creates bad motives. They don't want the CEO selling a bunch of puts, then deliberately tanking the stock. Not for the other bettors, but because the institution is about business.

Prediction markets are doing a bit of that. Some won't take bets on an assassination.

[slashdev]

You can bet on assassination. There are polymarket prediction markets for leaders of many countries where you can bet on if they will cease to be the leader by X date, for any reason.

If they get assassinated, those markets will resolve to yes. At least the rules don't specifically exclude that.

[mapt]

In the hypothetical Anarcho-Capitalist finance world, the remedy for a breach of fiduciary duty (corporate graft / insider tips) looks more like Jim Bell than Chuck Rhoades.