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Culture War Roundup for the week of December 29, 2025

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Reason article

insider trading is a victimless crime. Markets run on asymmetrical information. Stock prices bounce around because investors are always doing their best to use their own superior information for personal gain. So-called insider information is just one kind of asymmetry, and not a particularly insidious one.

What's more, insider trading tends to make markets more efficient. Here's the Washington Post last year, taking a page from George Mason economist Henry Mannes' book:

Markets work best when goods are priced accurately, which in the context of stocks means that firms' stock prices should accurately reflect their strengths and weaknesses. If a firm is involved in a giant Enron-style scam, the price should be correspondingly lower. But, of course, until the Enron fiasco was unearthed, its stock price decidedly did not reflect that it was cooking the books. That wouldn't have happened if insider trading had been legal. The many Enron insiders who knew what was going on would have sold their shares, the price would have corrected itself and disaster might have been averted.

I agree in theory, but the issue is not with information asymmetries, really - that's just how it's sold as 'fairness' to the public. Insider trading is bad because it radically distorts incentives for insiders and encourages all kinds of violations of fiduciary duty.

It's also bad because markets require liquidity and people (rationally) don't want to trade in markets in which they know they are at a significant information disadvantage

Allowing insider trading will reduce liquidity profoundly.

Prediction markets are going to be a very interesting space to watch for this. There, insider trading has the best argument, as it helps the market find the truth. But will people continue to participate in prediction markets if they know there are good odds they're going against sophisticated insiders? Time will tell.

How is liquidity more important than accuracy in long term market outcomes?