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PaperclipPerfector  1mo ago (text post)   32797 thread views

Culture War Roundup for the week of January 5, 2026

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This story went viral A prediction market user made $436k betting on Maduro's downfall.

A gambler made nearly half a million dollars on the capture of Venezuela's president just before it was officially announced, raising questions about whether someone profited from inside knowledge of the US operation.

Wagers on Polymarket, a crypto-powered platform, that Nicolás Maduro would be out of power by the end of January rose in the hours before President Donald Trump announced on Saturday the Venezuelan leader had been seized.

One account, which joined the platform last month and took four positions, all on Venezuela, made more than $436,000 (£322,000) from a $32,537 bet.

In the comments, one thing I have observed is the willingness of people to defend insider trading. Here is the highest-upvoted comment on Hackr News:

"Using insider information is how you are supposed to win these. Otherwise it's just random gambling. This is not the stock market. There are no public reporting rules for the weather, song lyrics, what Kim Kardashian eats tomorrow."

Does this sound insane to anyone else? Why isn't everyone doing this, if they aren't already? Just create a market about things you know in advance, using proxies and crypto mixers to hide your identity and money trail if needed. An Nvidia employee could make a prediction market about an upcoming chip, or an Apple employee about an upcoming iPhone. More specifically, shill accounts would create markets pretending to be an outsider, and the employee and his accomplices would place the correct bets leading up to the deadline. Wash trades by accomplices could be placed to create hype and volume to lure unsuspecting traders.

My comments of course were downvoted. They always are. I could make a comment along the lines of the "Pizza tastes great" and I would be downvoted by every pizza hater on that site and no upvotes by everyone else who enjoys pizza, as is the counterintuitive nature of online voting patterns. Writing good comments is an art in and of itself.

There's a market commentator who talks about silly stories in finance, Matt Levine. If you enjoy finance get on his mailing list and you get free columns.

One of the things I've learned from him is US insider trading laws aren't there to make markets fair (the whole point of markets is to spread information). They're punishing taking misappropriation of information the trader had a duty to keep for someone else.

Yes this still probably violates that second point, too. It does reinforce the quotes comments point.

I would counter by: if my employer feels I violated my NDA, they are free to sue me. It is a private dispute. We don't need a tangentially related criminal law to deal with it. The feds don't even know the contents of my NDA.

Enthusiastic seconding for his columns, they are quite fun. Think ToaKrakoa's law posts but on finance and with extra humor and the occasional super-excellent simplification of a complex financial engineering instrument.

Krakoa

I'm a Bionicle or a volcano, not a living island. >:-(

I did always wonder what was Toa Kraka's element.

I wasn't really thinking too deeply when I originally came up with the username fifteen years ago, but I guess it would be reasonable to imagine that "Toa Kraka" is a male Krahka (not affiliated with an element) who has sufficient mental discipline to wear Kanohi and therefore is considered an honorary member of his local Toa team (perhaps wearing a Great Mask of Fire, which is confirmed to be possible but was never actually shown in canon).

Sorry for angering the ToaKraken! <3

From Google Ai "Insider trading laws exist primarily to ensure fairness, maintain market integrity, and protect public trust by preventing individuals with privileged, nonpublic information from gaining an unfair advantage over regular investors, which promotes a level playing field and encourages broad participation in capital markets. These laws uphold transparency, ensuring all investors have access to the same information, thereby preventing market manipulation and fostering confidence in the financial system's reliability and honesty. "

"misappropriation of information" is one of many reasons

  • -10

Thanks for your AI slop that's also completely wrong.

why not just read the SEC website

https://www.sec.gov/news/speech/speecharchive/1998/spch221.htm

it says right here

"Our markets are a success precisely because they enjoy the world's highest level of confidence. Investors put their capital to work – and put their fortunes at risk – because they trust that the marketplace is honest. They know that our securities laws require free, fair, and open transactions."

fairness is a stated reason from the SEC itself.

I think the OP had a different argument in his mind. It would be like saying that Patriot Act is about being patriotic because government website said so, or that Inflation Reduction Act is about reducing inflation by ballooning government deficit, which predictably failed to no surprise for anybody, including those who proposed it.

There are real world actions that actually show that fairness is not necessarily the primary value. For instance stocks charge exorbitant money for earlier access to their data or for co-location with their servers in order for customers to reap benefits of high frequency trading scalping regular trader joes. If fairness was their goal, they would take steps in order to reduce such practices - but then they would lose revenue on level of $60 billion a year and increasing rapidly.

The difference in values between what I imbibed growing up (and yeah, I probably read way too much chivalric literature) and modern morals is such a gulf, I almost don't recognise the people on the other side of the chasm.

Cheating is okay, stealing is okay, things that in the past were considered dishonourable are okay, because honour? pfft, that's a joke! The only thing that matters is if you get caught, and unless you're a fool or stupid, you can wiggle out of that with some excuse or plea.

Story out today about an Irish academic who was both editor of some economics journals and co-author of papers which got published in those journals. Sees no conflict of interest there at all. He did nothing wrong. This was recognised practice in the profession. (I'm tempted to make snarky remarks about economists, but let's not). Other academics have come to his support with "yeah, everyone did/does this":

Prof Lucey, who is a professor of international finance and commodities at Trinity Business School, was editor in chief of the International Review of Financial Analysis for 12 years up to 2024.

He was editor of the International Review of Economics & Finance, another Elsevier journal, from 2019 to last October and was co-editor of Finance Research Letters.

It is understood he has submitted a formal complaint about the retractions to the Committee on Publication Ethics (Cope) and asked it to assess whether the process followed by Elsevier align with accepted norms for editorial investigations.

In a statement to the Irish Independent, he said: “All the authors dispute the grounds for retraction, as stated by both Elsevier and Cope, the industry oversight body.

“Retractions should only take place where there are concerns in relation to the scientific validity of work. No such concerns have been expressed here.” Asked about his reaction to the controversy, in which international academics have weighed in on both sides, Prof Lucey added: “I have absolutely nothing to be embarrassed about. The science is solid.”

...One of his grounds of appeal to Cope is understood to be that the publisher has been applying policies first introduced in 2025 to academic papers produced as far back as 2017.

“Practices regarding authorship and collaboration that were standard and accepted at the time are being penalised ex post facto,” he said in the email to some co-authors, going on to claim that there had been a “history of professional conflict” between himself and Elsevier over the peer review process in the International Review of Financial Analysis.

...Among the academics who have come to Prof Lucey’s defence on the social media platform LinkedIn is Klaus Grobys, an associate professor of finance at the University of Vaasa in Finland, who posted: “ I think it’s widely understood in academia that many editors follow similar practices. Singling out one person – Brian in this case – as a scapegoat strikes me as unfair.

“Had this been a broader discussion naming several editors, I might have been more inclined to applaud it.”

Nice work if you can get it! Be the guy deciding what papers get published in the journal when it comes to papers co-written by you which are submitted to the journal!

There is a value to letting previous decisions stand. For example, if Congress impeached the president every time his popularity sank below 50% of the voters, that would badly affect the stability of the political system.

There is a difference between saying "given today's policies, we would not let you publish that article" and actually retracting an article. The central example of an article being retracted would be due to fraud or plagiarism: someone having deliberately deceived the reviewers about their results or originality is enough to overturn the status quo.

Now, if it appears that he had broken explicit rules of conduct which existed at the time he published, e.g. not appointing a reviewer despite protocol calling for a reviewer, that would be grounds for retraction.

Unfortunately, we do not know that.

A notice has now been added to the online article stating: “Elsevier’s research integrity and publishing ethics team, with guidance from an impartial field expert, acting in the role of an independent publishing ethics advisor, conducted an investigation and determined that the article should be retracted.

Given that we do not get the report of that team, that parses to me as "secret evidence was enough to convince the star chamber of his guilt".

I think it would be ok to keep their report secret if at the end both parties agreed on the retraction, not every piece of dirty laundry needs to be aired in public. But given that the validity of the retraction is under dispute, it hardly seems like Lucey could object if they published everything.

In general, one could debate how much power the owner of a journal should have to enforce retractions of articles. Suppose a political activist billionaire bought Elsevier, and proceeded to retract articles matching some pattern (perhaps articles without minority co-authors, or articles authored by Jews, or which argued for/against anthropogenic climate change). Or perhaps ether theory proponents could buy Wiley-VCH and retract Einstein's Annalen der Physik papers on relativity.

Of course, this would not change the scientific consensus about Einstein one bit. After all, the power of a retraction comes from the fact that scientists and appointment committees treat them as real, but they do that because most retractions are solid, not because they are sworn to do so.

--

I also think that undeclared conflicts of interest and quid pro quo understandings in scientific publishing are likely very common. Most scientific fields are rather narrow, there are perhaps a dozen professors in your niche, not tens of thousands. Editing a journal or reviewing articles is (generally unpaid) work taken up by academics, and while I am sure that some of them have the best interests of their field in mind, these are also good positions to gatekeep and increase your own standing. "That manuscript is okay except that it is missing a citation of an essential publication" seems like a fairly easy way to boost citations of your own articles, after all. When people say that science advances one funeral at a time, I think that gatekeepers refusing to publish anything which contradicts their own pet theory are a big part of that.

While it is clear that the dysfunctionality inherent in the system should not excuse any particular dysfunctionality cultivated on top of that, I do not have a great solution to the underlying problem.

The idea that traditional vices are in many cases actually good for the economy goes back to at least the 18th century, see The Fable of the Bees. Published in 1714, with the subtitle "Private Vices, Publick Benefits", arguing that traditional ideas about honesty and virtue are bad for society and society benefits more from selfish individuals pursuing personal gain, rather than virtuous individuals pursuing the common good. This idea is still pretty prominent in certain types of libertarians and ardent defenders of capitalism, as you can see some of the reactions in this very thread.

As a fellow enjoyer of premodern literature, I am with you however. I find this attitude completely incomprehensible.

I find it pretty comprehensible. Motivated reasoning is a hell of a drug, especially when cut with philosophies like materialism, individualism, and deconstructionism.

Was this meant as a top level?

It could have been more explicit but I think the idea was to draw an analogy between the academic journal and insider trading cases, as both being examples of the sort of thing he decries in the first part of the post - dishonorable behaviour being defended or even celebrated.

I think we can separate this into two different questions:

(1) Should prediction markets allow insider trading?

(2) Should people with secret military insider information disclose that information for profit?

The value a prediction market provides is in the odds, banning insider trading would defeat that purpose. In this case, the prediction market providing an accurate image is strongly negatively correlated with the US military achieving its objective.

Two parties having different alignments is not that unusual, it would be the same for journalism and the military, for example. If a reporter is publishing secret military information they learned, they are doing their job. If a soldier is leaking such information to reporters, they are breaking their oath.

The way I would spin this is "a person with insider knowledge was endangering an operation which cost north of 100M$ and the lives of US troops to make a measly half million for themselves". (I am not sure of the timeline there, it is plausible that the bet happened after the capture but before it was announced. Sadly, the BBC seems not to be aware of either the concepts of time zones or hyperlinks (e.g. to the relevant polymarket page).)

While I personally would have liked it if the US operation would have failed as miserably as Putin's attempt to capture the Ukraine government at the start of his special military operation, preferentially with dead and captured US troops (because that is the language the electorate understands, sadly), I imagine the PoV of the US military is different.

In a functioning state, finding the leak would be a top priority. Even if the bet was made after the capture, condoning it would lead to situations where different insiders are competing, which would eventually lead to leaking of military relevant information. I would also predict that the perp was not a career officer, but a political insider. As such, I imagine little will be attempted to find the source.

I am still holding a faint hope that the insider trading will happen again before Trump attacks Columbia, and will lead to my preferred outcome.

Did they ever find out who bought the airline puts before 9-11?

(FWIW, my view remains that the puts were bought by well-connected non-terrorist Saudis with a back channel to Bin Laden, the Bush admin knew this by early 2002, and it was covered up in the 9-11 commission report).

Let's also keep in mind there's a certain utility function for the US government of having a method to backchannel "reliable" information to the "public" (rival intelligence agencies). Partially for signaling deniably, but perhaps more importantly because you can use it (once) to rugpull anyone at any time.

I feel like the defenders of insider trading and the boosters of prediction markets more generally are ignoring two massive elephants in the room. In fact they are so massive I feel like "elephant" is underselling their massiveness. More like brontosauri in the room.

Brontosaurus #1: Buying "shares" of a prediction, is not an "investment" in the way that buying a "share" of Amazon or Raytheon is. It's more like buying a lottery ticket, or enrolling in a multi-layer-marketing scheme. Yes there is the possibility of a big pay out, but it is a very small one, and the in mean time the owners of the prediction market have your money. Money that you could have spent on other things. It is a fundamentally parasitical relationship.

Brontosaurus #2: Conflict of interest. The assumption that perfect information for all players is always a net good relies on an assumption that none of the players will ever be direct conflict or competition with one another. This assumption is obviously false, so we must ask whether the purported benefit of having a prediction markets is even a benefit. Is making more information available desirable? I can easily think of cases where it would not be.
For instance, if I am a player on the Packers Offense, I do not want the Bears' defensive line to know what play we're going to run before we run it. It's not just the players themselves either, if I'm a coach, or a fan, or just some guy who "bet the over" on the game, I also do not want the Bears to know what play the Packers. If a bet involving two teams in a discreet game with mostly legible rules is already this messy, imagine how messy it can get when you have three teams in a continuous game with far less legible rules? Say instead of Packers vs Bears we have Ford vs Chevy vs Dodge. Even then that's still a relatively trivial example. I don't even want to think about all the weird and perverse incentives that would arise from things like Judges to "betting" on which way they are going to rule in a legal case, or any of other innumerable other chances to defect and/or make-a-buck that people would surely come up with were this to become normalized.

Every investment is uncertain. That doesn’t make them all lotteries or MLMs.

Prediction market “shares” are transferable contracts. They entitle the holder to a payment if and only if something turns out true. This makes them more like options. And like options, they’re a useful vehicle for gathering information. Sometimes that’s appropriate, sometimes it’s not.

Every investment is uncertain. That doesn’t make them all lotteries or MLMs.

Something being uncertain is not what makes it "gambling", and something making money is not what makes it an "investment".

When you invest you are (again in theory at least) acquiring an asset. That asset may appreciate or depreciate in value, but that asset is explicitly yours, and you do not manifest any gains nor losses until you choose to sell. This is notably not how prediction markets work, or even how options work for that matter. Even after ruining the Duke brothers you still have to sell the orange juice.

The point is that prediction markets do not generate wealth so much as they extract it from their participants. That's why I describe the relationship as "parasitical".

  1. This makes no sense to me. What is the key difference that matters in your opinion? Is it the probability of payoff? Prediction shares are binary, so if one side has low probability, the other one has high probability. Start-up equity has low probability of success: are they in the same category? Is the issue that they hold your money until the event? We could imagine a type of prediction markets where we put shares of VOO instead of cash. Would that change your view on them? The shares are going to be held anyway, so there is no inefficiency there.

  2. You don’t need to assume that perfect information is good to think prediction markets are good. That’s a strawman if I ever saw one. You might be able to make a strong case for banning prediction markets based on negative effects of too much information, but it won’t be a strong case unless you explain why it wouldn’t be better to, say, have their players contracts prohibiting this and enforcing it.

Re: #1 see my replies to @netstack above and to @2rafa below.

Re: #2 I disagree that this is a strawman. Pretty much every justification for the positive value of prediction markets that I have ever come across can be boiled down to a single supposition; "More information is always better". If you think that's an unfair characterization, please provide an alternative.

  1. I still don’t understand your point of view on this. Why is there a difference between acquiring a real asset versus a financial asset (that is someone else’s liability? You mentioned wealth creation, but trading financial assets/securities creates wealth. Trading happens under mutual agreement which means both parties are better off.
  2. Using that segue, prediction markets create value in the same way that any trading creates value. What gives rise to two people wanting to trade with each other? Different situations in or different beliefs about the future. This is the simplest libertarian argument for freedom to trade with each other.

Re: #1 I do not know how to state my case any more plainly than i did in my reply to @2rafa.

In the conventual stock market you buy shares of Amazon or US Steel that money is (in theory at least) adding to the capital valuation of that company. That capital valuation then helps finance things like new equipment, payroll, etc... You are paying money to own a "share" of that company, it may be only a 0.000000002 percent share of a billion dollar company, but (again in theory at least) 0.000000002 percent of that billion dollars belongs to you and you can cash out at any time.
Meanwhile "investing" in predication markets is something more akin to "investing" in scratchers tickets. The House has your money regardless and all you are left with is the hope that they might share a portion the money they already took off of others with you.

emphasis added.

Re: #2. Meanwhile when you put money into a Prediction Market your money isn't going into the economy (at least not directly) nor is it going into deciding your wagered outcome, it is going to "the house" and what you do (or do not) get paid back is entirely dependent on the house. In this sense a prediction market is not really a "market" in the "market economy" sense of the word so much as a Casino cosplaying as a market.

Yes there is the possibility of a big pay out, but it is a very small one, and the in mean time the owners of the prediction market have your money. Money that you could have spent on other things.

...same with a bank.

Incidentally, this is the exact reason Kalshi pays interest on money they hold for you, so you aren't losing out (much) by stashing cash there.

https://news.kalshi.com/p/interest-cash-open-positions

Yes there is the possibility of a big pay out, but it is a very small one,

In this case, the 'chances' of the payout and the size of it are pretty hard to miss, though.

I do not want the Bears defensive line to know what play we're going to run before i run it. Two teams is a trivial example, do we really want to unlock the weirder and more perverse incentives that might come from say allowing Judges to "bet" on which way they are going to rule in a case?

The incentives run both ways, actually.

If there's an outcome you really WANT to make happen because it pays out immensely for you, you can open up an extremely large position against it happening, in hopes that someone with the ability to influence the outcome will see the opportunity and act on it.

This is how 'assassination' markets would work, in practice, speaking of perverse incentives.

"I bet 1 million dollars on a 99% chance that [Victim] will be alive one month from now."

Potential assassin sees this, buys the other side of the bet, then goes and kills the target.

But of course, lets say [Victim] notices the bet, hires on more security (who are compensated with shares of the "Alive" side of the market, they only get paid if he lives), and bets heavily on his own survival.

Who wins the bet? Well, its the skill and motivation of the assassin vs. the skill and motivation of the security team, I guess. An extremely confident security team will buy more contracts heavily in favor of their guy's survival. Which means the prediction market should settle on something like an 'accurate' likelihood of the person being alive when the contract terminates.

But of course we probably DO want to ban these sorts of markets. Question is whether we also want to ban markets that are too close a proxy for them.

...same with a bank.

No, not the same as with a bank. The bank you see, is always going to owe you back what you paid in, even if getting what you are owed is a separate question.

Incidentally, this is the exact reason Kalshi pays interest on money they hold for you

All I knew of Kalshi prior to clicking your link was those obnoxious AI-generated commercials they've been spewing all over Monday Night Football wherein the Wright Flyer is portrayed as a WWI style bi-plane.

From the looks of it they're trying to style themselves as a online bank/payment app as a means of trying get around existing gambling regulations. The blog post you linked claims zero transaction fees, but the fee-schedule for 2025 posted on their main website would seem to contradict that claim. If the blog article is honest and they really are both paying interest and not charging fees that just begs the question "Where's the Vig?", What is Kalshi's revenue model? How are they paying for all those prime-time ad-slots? I'm not sure exactly what their game is, but something smells off.

The incentives run both ways, actually.

Incentives running both ways is not a good reason to amplify and encourage them.

Incentives running both ways is not a good reason to amplify and encourage them.

I'm just saying, in binary outcome markets... if your complaint is "This creates an incentive to do X!" it necessarily ALSO creates an incentive to do NOT X, since there's people on both sides of the bet who stand to win if the event does or doesn't occur.

This is why the concept of 'Futarchy' (if Prediction markets REALLY gain acceptance) would function.

Or any of other innumerable chances to defect and/or make-a-buck that people would surely come up with were this to become normalized?

Yeah, I don't know how someone can wave away the fact that it's possible to, on stock markets, bet against a company, and that it's trivial for a CEO to ruin a company in a sudden, stroke-of-a-pen way that makes frontrunning everyone on benefitting from the collapse guaranteed. The individual incentives becomes to wreck every single company.

In an alternate world where the only regulatory change were the legality of insider trading, a CEO who tried such a thing would still be abandoning his fiduciary duties to his shareholders and still be vulnerable to civil suits and criminal prosecutions relating to various crimes ranging from wire fraud to different types of securities fraud. His trading would also still be monitored by his company's compliance department and subject to regulatory reporting.

a CEO who tried such a thing would still be abandoning his fiduciary duties to his shareholders and still be vulnerable to civil suits and criminal prosecutions

Except that the shareholders would be out millions of dollars. Dollars that the perfidious CEO can now use to hire an army of lawyers and legislators to ensure that the shareholders never see a cent and that he never goes to jail. Also why would you expect the CEO's trades to be "subject to regulatory reporting" if the regulations no longer exist? Wasn't removing them the whole point of this exercise?

Except that the shareholders would be out millions of dollars. Dollars that the perfidious CEO can now use to hire an army of lawyers and legislators to ensure that the shareholders never see a cent and that he never goes to jail.

Even on just the civil side, large shareholders can bring class action civil suits on behalf of all shareholders who wish to join in, and the pockets of large shareholders can be far deeper than those of a given CEO. The SEC can do so as well alongside or in the absence of shareholder lawsuits. This already happens in our current world.

Also why would you expect the CEO's trades to be "subject to regulatory reporting" if the regulations no longer exist? Wasn't removing them the whole point of this exercise?

Nope, as I explicitly mentioned, the exercise just involved flipping the legality of insider trading. While a lot of compliance and regulatory reporting requirements were originally motivated by insider trading concerns, they can exist in the absence of insider trading being a criminal act.

In any case, in countries like the States, there are a lot of laws and regulations concerning corporate officer behavior, fraud in general, and securities fraud where insider trading is far from a load-bearing pillar, to the extent insider trading is even a consideration much less a pillar.

The individual incentives becomes to wreck every single company.

Are you familiar with the Bankrupt series of documentaries from Bright Sun Films? There are some firms that seem to have built their entire business model around this.

The fundamental question seems to be whether prediction markets are basically gambling or basically banking. For prediction markets to work at scale, they have to be on the gambling side. The question is whether people's innate risk-aversion leads them to treating it more like banking, which ruins the point of a prediction market in the first place.

The whole point of a prediction market is that people with inside knowledge will exploit it, thus leading to shifts in the odds line, thus leading to that insider information being communicated to all of us, anonymously through the price signal.

that people with inside knowledge will exploit it,

I think this is broadly true, but "inside knowledge" is a bit of a spectrum here. Trading on classified "inside" information: probably too far. Betting on someone's death because you're a nurse that saw their chart? Probably also too far. Note that both of these are potentially crimes separate from the betting, though.

Even in the corporate world, there is a line between presumed insiders in management, regular employees (who can trade generally, but not in specific situations), and someone on the outside who just knows a specific market domain much better than the average investor. And it sounds like commodities is even a bit looser still (outside of onion futures).

I'm not sure where I'd put the line, but I don't think I'd ask for complete openness. Sports betting, especially on intra-game details, seems particularly prone to rigging, and we've seen criminal charges files within the last few months that IMO don't feel unreasonable. I see wanting efficient pricing of probabilities, but it seems like we should agree on what the priors for those probabilities are.

This will get regulated eventually. It’s incoherent to apply an entirely different regime to ‘prediction market bets’ than to financial markets, especially when plenty of eg Polymarket markets proxy the regulated securities market (betting on recessions, corporate performance/product, fed policy) as exchanges and others have raised.

There is, like Sloot said, a long history of libertarians and some other people arguing that insider trading should be legal to allow for better price discovery / for market efficiency, that it should be limited only contractually (eg. between employee and employer).

But people instinctually don’t like the idea of insider trading, and so it doesn’t seem coherent to allow it only on Polymarket. The most liquid prediction markets also have a relatively large amount of federally-mandated KYC now, so investigation can’t be substantially harder than for other insider trading.

I think it will happen. Maybe not soon, but eventually. That said, people do get away with insider trading most of the time. There were substantial moves in Israeli securities, in oil, in defense before October 7 for example, presumably because a lot of people knew and those people talked.

It’s incoherent to apply an entirely different regime to ‘prediction market bets’ than to financial markets,

This is incorrect. It would be more accurate to say that it is not only incoherent but economically irresponsible to apply an entirely different regime to ‘prediction market bets’ than we do to sportsbooks or any other form of betting.

In the conventual stock market you buy shares of Amazon or US Steel that money is (in theory at least) adding to the capital valuation of that company. That capital valuation then helps finance things like new equipment, payroll, etc... You are paying money to own a "share" of that company, it may be only a 0.000000002 percent share of a billion dollar company, but (again in theory at least) 0.000000002 percent of that billion dollars belongs to you and you can cash out at any time.

Meanwhile "investing" in predication markets is something more akin to "investing" in scratchers tickets. The House has your money regardless and all you are left with is the hope that they might share a portion the money they already took off of others with you.

This is incorrect. It would be more accurate to say that it is not only incoherent but economically irresponsible to apply an entirely different regime to ‘prediction market bets’ than we do to sportsbooks or any other form of betting.

Insider sports betting isn't illegal, but essentially every sports governing body has rules against the sort of people who might count as insiders betting on their own sport. Sometimes violating these rules involves committing broad-spectrum crimes like mail fraud or wire fraud and there is a criminal investigation into insider sports betting.

every sports governing body has rules against the sort of people who might count as insiders betting on their own sport.

Correct, and eventually the same would have to become true about prediction markets, which according many posters here would defeat the purpose of having prediction markets in the first place.

Meanwhile "investing" in predication markets is something more akin to "investing" in scratchers tickets.

But it doesn't have to be. Admittedly chances to use it for hedging are limited these days, but there are examples. Houston's "Mattress Mack" is famous for running furniture sales contingent on the performance of local sports teams ("if the Astros win the World Series, it's free") and using sports betting to hedge those outcomes.

The market cap is too small for this to be practical for a lot of things at the moment, but I wouldn't want to rule out potential practical applications completely.

But it doesn't have to be.

If you want your prediction market to have a "practical application" (outside lining of the owner's pockets) be it as tool for gathering accurate information, or as a platform for hedging, it absolutely does have to be this way.

That is why I say that it is not only logically incoherent, but economically irresponsible, to treat "prediction market bets" differently from any other form of betting.

I am not that sure. Prediction markets were proposed specifically as an information gathering tool. In that sense insider trading should be incentivized, as benefits of increased accuracy are more important than some sense of fairness. He mentions potential negative impact of lower incentives for traders to engage, but in the linked article Scott uses the example of very limited anti-insider trading rules for commodity markets - and yet those work just fine.

I am not that sure. Prediction markets were proposed specifically as an information gathering tool. In that sense insider trading should be incentivized as benefit of increased accuracy are more important than some sense of fairness. He mentions potential negative impact of lower incentives for traders to engage, but in the linked article Scott uses the example of very limited anti-insider trading rules for commodity markets and yet those work just fine.

And the CIA was specifically established to coordinate government efforts to gather information. Which is vast majority of its personnel ever do, too. But it is famous for the activities committed based on the information gathered.

It's (only) an "information gathering tool" should not be a thoughtstop. If liquid prediction markets enable insider trading and other undesirable defect actions, then their purpose becomes insider trading and other undesirable defect actions.

If liquid prediction markets enable insider trading and other undesirable defect actions, then their purpose becomes insider trading and other undesirable defect actions.

Defect from what? Prediction markets are about accuracy and truth, insider trading increases accuracy. It may be "defect" action when it comes to some NDAs or some sense of fairness - but again these are orthogonal to the purpose of prediction market which is accuracy of prediction.

Also the whole defect thing is stupid in my eyes. For instance apparently some analyst companies employ fleet of drones and satellites to monitor parking lots in front of Walmart to predict their sales numbers. Not every individual investor has access to these satellites. These analysts waste money and time to "outcompete" and scalp average trader Joes in this useless information gathering competition. What if I purchase data from ramps regarding number of cars from somebody inside the company or even better, purchase camera footage and employ AI algorithm to calculate how full are the carts thus showing the middle finger to drone/satellite losers. It is the same stupid information game. What is the defection here?

Prediction markets are about accuracy and truth, insider trading increases accuracy

See my reply to WandererintheWilderness. Accuracy for whom? Why? Prediction markets are not a neutral technology.

What if

So you can construct a scenario that sounds relatively innocuous. What about the real event? If I were an American serviceman, I would be worried that someone in the loop of secret military operations is perhaps in the business of making personal profit by trading on knowledge of military secrets. If I were an American government official or lawmaker, I would be looking for ways to cost0efficiently stop or neutralize it.

But that's just circular. Why is insider trading "undesirable"? It's undesirable on the stock market and in sports betting because it's an unfair advantage. But that's only because part of the point of the stock market and sports betting pools is that they're meant to be fair to the people investing/betting. If we stipulate that the point of prediction markets is, exclusively, to generate maximally accurate information about the future, then there's nothing inherently wrong with it being less than maximally "fair" to betters: no one promised it would be.

If we stipulate that the point of prediction markets is, exclusively,

And my point is that we should not grant that premise. In this discussion I feel like its 2010, and I am arguing against someone who claims "point of Uber is just to be an app for ridesharing". technically true, but that was only a technical goal, the point of the app was to provide service that could circumvent the existing taxicab service regulations by becoming too popular to sue effectively.

Similarly, the point of prediction markets is not to max an abstract "maximum information accuracy points" of the universe, it is to provide accurate information about multitude of things to various people for a price. Some can be fun and inconsequential ("who will be the mayor of $InsertGenericLocality"), but some will have consequences. C-suite executives and knowledgeable employees can absolutely make a profit (and make investors in their employer lose money) by trading secret information on a prediction market concerning to their employer. A government official or military personnel can absolutely make a profit and kill a military operation (and kill some people too) by trading secret information on a prediction market concerning geopolitically relevant outcomes.

In case of Uber one can argue that achieving the ultimate purpose was a net good for consumers (especially in major metropolitan areas, but perhaps not-so-good for would-be taxi drivers). If you want to make a case for a prediction market for financial or military secrets, you have to make a case that availability of such information for a price is a net good.

I grant that I was not really defining "insider trading" and "defections" in my reply, and using it vaguely, but everyone participating here can peruse all the sibling comment threads for a more detailed discussion about various scenarios.

it does sound insane that they're allowing something which could potentially compromise national security. The military didn't even tell congress they were doing this, to prevent leaks, but someone apparently put this out there on a public website?

Selfishlly, I wonder if we could take advantage of this. Maybe set up a script that would watch for big, sudden bets on unusual markets from newly created accounts, and then piggy back off of them.

Everyone seems to be assuming it was from the American side. Just as likely to be a Venezuelan.

How would a Venezuelan have known about this operation in advance?

How would a Venezuelan have known about this operation in advance?

Because I'm some rich kleptocrat who lives on the beach and a whole Company's worth of Direct Action Penetrators just passed overhead on their way inland.

Honestly, if you're some rich kleptocrat, and you see a surprise attack coming into coup your country in the middle of the night, and your first thought is "I need to go bet money on Polymarket!" then... I gotta respect the hustle.

I still think it's more likely that this is some middle class DoD beaurocrat who heard about this a month in advance and saw the chance to make several times his annual salary in one night.

Because US intelligence was paying them to provide info on Maduro's daily habits, they realised what was going on, and wanted to double-dip on the rewards?

Because they were on Delcey Rodriguez's staff and knew about the deal she did with the Trump admin in Qatar?

I suspect the feds will figure out whose bet this is in short order. If it's a regular employee with a clearance, I'd expect a loud public circus to make an example out of them. If it's some lucky bystander who figured it all out (watching pizza indices? fishing in the south Caribbean?), I'd bet it's much quieter; maybe there will be some new slides in the annual OpSec training everyone else involved has to take. Slight chance it was just luck, too, like that set of crossword clues about D-Day.

Slight chance it was just luck, too, like that set of crossword clues about D-Day.

That wasn't luck, that was leak. The official story is at Wikipedia, but I'd guess the leak was more direct than that (I thought Dawe eventually admitted such, actually, but Wikipedia would say if he had)

Sure, integrate this with some "pizza indexes" and you'll have a solid product.

If the feds can get people for rigging poker games, they will find you and catch you doing this if you’re leveraging insider info, even if it’s not a security. But even if they didn’t it’s spiritually bad for you. Lotteries and the like are just a tax on poor people.

I just don’t care if people like Nate Silver make money in gambling markets. It pulls regular people in who lose bad and can’t get out. It is good old fashioned gambling and lucrative bets are out there for every venue. It’s sad to dream of a way out of your middle class life that involves spending the money you do have.

Another part spiritual, part psychological reason for opposing gambling is that it effectively teaches people that it's possible to get "something" for "nothing". There are many people who think that freebies - especially anonymous systemic-feeling ones - are spiritual poison to the psyche. It undermines motivation, the internal valuation of hard work, decreases charity/service/selflessness, and of course, it is addictive (at least for some subset of people if not all).

Exactly. I've worked extensively in the industry and made a fair amount of money betting lifetime. Me being able to occasionally find some money bilking operators doesn't really change the fact that the whole thing is built on a gigantic amount of owning essentially defenseless idiots who'd be far better off if they had no exposure to betting.

Even the long-term prognosis for savvy sharp bettors isn't necessarily that rosey. I've seen plenty of cases where somebody started out fine Years 1, 2 and then eventually ran out of edge. Which is especially brutal if they've elected to go full time gambling since then you've got essentially nothing productive on your resume after you've run down your roll. The massive expansion of gambling is a huge social tragedy.

I am also under the impression a lot of large corporate gambling companies will just ban you or restrict how much you can gamble if you are too good. They want to bet against people who will lose, and nothing prevents them from ceasing gambling with people who consistently win!

A lot of it depends on how you go about it. There are some bookies in the world that are faster to converge on a correct/less-wrong price than others, so if a bookmaker sees you're consistently betting times when their prices are 'stale' they will generally kick you out in short order. Which is known as steam chasing since you're essentially arbitraging a faster market move into a slow participant.

Some people (though this is exceedingly rare) can straight up win against the final, most-efficient pricing and they tend to get longer tenures before getting kicked off since it's harder to distinguish that from somebody who's just getting lucky. In either case you'll generally get kicked off before winning any crazy amount of money, and exchanges/prediction markets have historically introduced Premium Charges as well to cull the most-winningest accounts in order to dissuade 100% ROI strategies like insider trading and courtsiding.

Sportsbooks are solvent despite offering terrible odds. And prediction markets almost always give better odds than the books.

We're fortunate to live in a reality where enough suckers and gambling addicts provide enough incentive for sharps and insiders to come in and provide accurate odds.

Sportsbooks are solvent despite offering terrible odds. And prediction markets almost always give better odds than the books.

IIRC Kalshi doesn't tend to consistently beat the overround on sports of other major books, and that's just over quite a limited array of markets versus what an actual sportsbook will tend to be offering. Polymarket does a bit better but will undoubtedly one day introduce commission unless their plan is to just not have revenue.

Genuine sharps will do fine off the PM model though steamchasing is gonna be difficult on either platform since it's not really contributing any meaningful signal. Insiders 'providing accurate odds' is tricky when the accurate odds for an option are 100%, and in the longterm it's quite likely that the PMs manifest some premium charge equivalent from the old days on betting exchanges to curtail absolutely toxic flow.

I have observed is the willingness of people to defend insider trading

Insider trading is a thing people do on the stock market, which is a completely different thing with a different history and different purposes. If you want to convince me that people using insider knowledge to win at these "gamble on the news" games is a bad thing that I should be opposed to, you have to do it using actual reasons.

but aren't prediction markets also markets? I am not emotionally invested in the outcome of this either, and dumb ppl losing money in the market or from information asymmetries doesn't upset me much. If this is legal, then it's a no brainer to do this at scale like the examples I give in my original post. just set up markets where you know the outcome in advance and hope someone else takes the other end of the trade, or maybe find an employee who has insider information and split the profits or something,

Okay, so go do it? Who cares?

but aren't prediction markets also markets?

No they are not.

What is the exact moral hazard you're trying to prevent here?

The whole point of prediction markets as a concept is to aggregate information for the benefit of non-participants. All the participants are playing by the same rules (which don't prohibit insider trading) so I have no sympathy for anyone on the losing end of those bets.

The whole point of prediction markets as a concept is to aggregate information for the benefit of non-participants.

No, their purpose is to make money for the operators of the sites.

Why isn't everyone doing this, if they aren't already?

The reason, which becomes clear if one looks at the fine print, is that these markets have absolutely pathetic volume. One and a half million dollars on whether Trump will take Greenland. This is probably for the best. If I had a Polymarket account, I would have bet against Maduro being removed from power, and I would have lost my money.

Despite the hype, the smart money on Wall Street is not getting involved.

Is Wall Street allowed to get much money involved yet? Polymarket.com still lists the US as "blocked"/"completely restricted from accessing Polymarket", Wiki claims the block lasted until December 2, 2025 after Trump "eased the regulatory environment" (with a link to a headline that only mentions trading on election results), and I can't find anything that lists what the current regulatory environment actually permits.

the Venezuela contract had enough liquidity for someone to book a $400k profit,and I don't think his trades moved the markets much. As prediction markets gain popularity, so will volume.

Does this sound insane to anyone else?

Using congressional insider trading as a rough proxy, the vast majority of people are vehemently against insider trading. People have a knee-jerk reaction to unfairness (caveats abound) and thus insider trading must be prevented. Being a libertarian, I'm much more comfortable with unfairness than the general public.

I think it also creates perverse incentives, especially if you're in a position to choose how to resolve the bet. For example, let's say there is a market for whether Canada will send over $1b to the Ukraine between January 1st - April 30th, 2026. If I'm a Canadian MP, especially one of the ruling party, I can choose how to resolve the market - which means if I decide I earned a bonus, I can look at whatever position has a better payout, bet on that, then delay/accelerate sending aid to make my position true.

The issue becomes that "making money" is a much stronger incentive than "doing the right thing" - so you could take even outlandish positions and bet on them.

"But not everyone has that much power! Most people only know a little bit!"

Well, yes, true, but most people have areas of influence. Not everyone can know whether NVIDIA's new chip will make it to market before Intel - but the employees at NVIDIA could delay, find "faults", etc. in an effort to push the date back.

Insider trading is bad when the people betting on it are also the people who decide which direction it resolves in.

Criticizing insider trading in the stock market is one thing but criticizing it in prediction markets is another. Harnessing insider information is a reason Robin Hansen pioneered the concept of prediction markets.

...and that doesn't rebutt anything @Zephyr said.

If anything it makes the potential for conflicts of interest even worse.

I think it also creates perverse incentives, especially if you're in a position to choose how to resolve the bet. For example, let's say there is a market for whether Canada will send over $1b to the Ukraine between January 1st - April 30th, 2026. If I'm a Canadian MP, especially one of the ruling party, I can choose how to resolve the market - which means if I decide I earned a bonus, I can look at whatever position has a better payout, bet on that, then delay/accelerate sending aid to make my position true.

Orderbook would be thin for a market like this, your senator would be risking his job and reputation for a measly low 5 figure payout.

Well, yes, true, but most people have areas of influence. Not everyone can know whether NVIDIA's new chip will make it to market before Intel - but the employees at NVIDIA could delay, find "faults", etc. in an effort to push the date back.

Majority of nvidia employees are multimillionaires, especially the ones in position to change timelines. Once again - risking a lot for a relatively small payout.

The conversation about effects of prediction markets on our world are valid, but I think most people overestimate how much of an effect they could have. Polymarket double counts their volume, most markets' orderbooks are thin. Insiders will be getting some peanuts payouts here and there (I personally don't care), smart players like funds have another signal to monitor to be ahead of others. That's really it.

your senator would be risking his job and reputation for a measly low 5 figure payout.

Nah, Canada is corrupt, they'd be fine - we just had our former finance minister and special envoy to Ukraine defect to Ukraine, and we still don't know the list of individuals who are compromised by foreign governments.

we just had our former finance minister and special envoy to Ukraine defect to Ukraine

How's that defection? People are allowed to change jobs, aren't they?

Sorry, I was exaggerating for comical effect.

Here's a bit more elaboration on what happened:

  1. Christina Freeland was the former finance minister of Canada (if you aren't familiar with Canadian governmental practices, that means she was serving as an elected MP in our house).
  2. She acted as finance minister during the tenure of Trudeau, and resigned after being asked to present a budget that he tabled.
  3. When Trudeau resigned, there was an election where she was elected again, but this time she's in Carney's government.
  4. She was appointed to a role that is basically "Special Envoy to the Ukraine."
  5. She accepted an unpaid offer to go work with Ukraine as a financial advisor to Ukraine in December last year (word on the street is saying it was on the 22nd).
  6. She told Carney on the 24th.
  7. Canada gave a $2.5B loan guarantee program to Ukraine on the 27th.
  8. She initially did not announce that she was resigning from her MP position, but only did so under pressure.
  9. There is supposed to be a 2 year "cooling off" period between being an MP who administers a file, and taking on a position in that industry. X link from a former ethics minister Conflict of interest act Canada.

Basically, I was calling it a "defection" as Freeland has always been a bit of a Ukraine activist in government, and was working directly with Ukraine (as a Canadian MP, which she still is today) when she decided to swap over. It's fairly blatantly a conflict of interest, but I figured very few people would care to know all the details.

They are thin, but this guy still cashed out a 400k+ profit. Some contracts have pretty big volume and such volume will increase with the popularity of these markets.

We can easily create hypotheticals for people who are not multimillionaires also affecting outcomes for a payout

I guess the question is where does one draw the lines ethically. If I am sitting on information, even something seemingly as trivial as record sales or movie ticket sale, and I trade on this, is this ethical? I don't think so, but I am not going to lose much sleep over it either. It does make markets more efficient in the sense of the price being closer to its appropriate value. But I can see a surge of hacking incidents or hostages as people try to glean insider information that can be traded on prediction markets, instead of sold to hackers or riskier regulated markets.

I understand why utilitarian arguments exist against insider trading, but deontologically I'm having trouble getting to it being unethical.

Any regulation can be rationalized. Burqas are mandated to mitigate lusting after women because lusting after women leads to all kinds of untoward things.

The health of the market relies on the wisdom of crowds, which requires crowds of people to be able to reliably win from it. Insider trading is bad not because in some moral sense "unfairness" is bad, but because if it happens often enough that ordinary people learn that it's unfair they'll stop participating. Prediction markets are zero sum to begin with, so I don't expect them to survive long-term without subsidies, but what life they do have is built by the belief that smart people can earn money from their intuitions. If that fails to be true because insiders keep swooping in and snatching up all the money at the last minute, then fewer non-insiders will participate, and we'll only ever get accurate results when there are insiders.

This would be less catastrophic than if it happened to the stock market, since the death of prediction markets wouldn't ruin us the same way the death of capital investing, but it's still a potentially existential crisis within its demand. This isn't just about people's moral intuitions, there are stakes.

Agree with where I think you are going. As someone who has worked in market making if you always need to adjust the market you make for someone having insider information then it’s a toxic flow and you need to adjust your bid/asks spreads for sometimes getting completely run over so you average profit on most trades needs to be bigger.

A market that works is one with punters and smart betters. When you add in a guaranteed winner who knows the outcome everyone else’s profits go negative. So then market makers leave the market and it no longer exists. The market makers will end up getting filled on a lot of losers.

Eventually non of the benefits of prediction markets exists. The wisdom of crowd people leave because they lose a lot to people who just know the outcome. The guys traded on insider information quit trading because there is no market.

Investing wins long term because of overall market growth, not information disparities. Wisdom of the crowds only works in unbiased markets. The famous examples work unless you shove a bunch of lead weights up the cow's ass or put ping pong balls in the middle of the jar of jelly beans. Insider trading increases accuracy, reducing volatility on net, long term. This is good for long term growth.

Prediction markets are zero sum to begin with, so I don't expect them to survive long-term without subsidies

I'll take that bet /s Gambling is zero sum and is one of the most persistent markets that has ever existed.

WE GOT WEIGHTS IN FISH!

Does this sound insane to anyone else?

Do you want the "prediction" in "prediction market" to mean something other than "massed guessing" or do you want the price to reflect as much information as possible so users can actually rely on the market price for other things?

I can understand the urge to want everyone to be playing around with the 'same' information, for fairness' sake, and the person who can use that info to best guess the outcome wins, but there's all KINDS of private, otherwise inaccessible information out there that it would be beneficial to draw into the open by incentivizing insiders.

An Nvidia employee could make a prediction market about an upcoming chip, or an Apple employee about an upcoming iPhone.

This information can benefit people who don't even participate in the market to have, is the thing. Seeing that there's suddenly an 85% chance of a new, completely unannounced iPhone being released is potentially useful, and you're under no obligation to trade against that info.

You WANT someone who has some specific, meaningful information to trade on it ASAP so as to update the price and disseminate that info to others who may be able to utilize it in their own trades or inform their own actions.

The unfortunate fact that a lot of people DO choose to gamble against potential insiders is really the only part I find morally questionable. Pumping and dumping and wash trading and hype trains happen all the time in 'regular' markets, though. Should people have been stopped from trading GME during the short squeeze? People got a tad pissed when exchanges blocked them from trading.

A gambler made nearly half a million dollars on the capture of Venezuela's president just before it was officially announced, raising questions about whether someone profited from inside knowledge of the US operation.

The funniest thing possible would be if it was Nicholas Maduro himself, trading on his polymarket account right as his door was being kicked in.

The arguments for permitting insider trading are pretty straightforward from an economics perspective. We want prices to incorporate all available information. Limitations on trading by insiders prevent information from being incorporated into a price as quickly as it could be. So restrictions on insider trading make prices less efficient, less useful, than they could otherwise be.

I think the best counterargument I've heard comes from some of Matt Levine's writings on US equity insider trading. The basic skeleton is that the restrictions on insider trading reflect a duty of confidentiality you have to some entity with respect to that information. If I am an employee of a company and come into possession of some material nonpublic information I have a duty to my employer to keep that information confidential and insider trading restrictions are a reflection of that duty. Trading on that information (or sharing it to others for them to trade on) violates that duty by revealing that information.

What that second argument looks like in the context of prediction markets is less clear. I think in the specific Maduro case whoever did the insider trading probably had a duty of confidentiality with respect to that information. Likely to the United States government. I am not sure how well it generalizes.

Does this sound insane to anyone else? Why isn't everyone doing this, if they aren't already? Just create a market about things you know in advance, using proxies and crypto mixers to hide your identity and money trail if needed. An Nvidia employee could make a prediction market about an upcoming chip, or an Apple employee about an upcoming iPhone. More specifically, shill accounts would create markets pretending to be an outsider, and the employee and his accomplices would place the correct bets leading up to the deadline. Wash trades by accomplices could be placed to create hype and volume to lure unsuspecting traders.

One thing preventing just anyone from doing this is market liquidity. In order to make a substantial amount of money you need a lot of people to be willing to take the other side of the bet. Also, it seems like people are doing this. At least some of them.

There's also some weirdness in US law, specifically, about prediction markets technically being event contracts which are commodities and subject to different (more lax) insider trading rules than equities.

One strong argument against insider trading is that using the market you can profit off of any volatility. We want to stop insiders from having a motivation to create volatility.

Actually, modern financial instruments enable you to profit off low volatility too; look into iron condors and calendar spreads. I imagine this is one of the more common insider trading opportunities, in fact: if you know beforehand that this quarter's earnings report looks a lot like last quarter's (or the same quarter from last year, depending on the business), for instance, which it often will.

What you really profit from is not volatility but surprise. If you know better than market, you should be able to find a way to monetize that knowledge. Of course, your profit depends on degree of surprise, so it's hard to make much money when the market is already close to right.

Also, making a modest but closer to certain than expected 10% gain on your low-volatility play is probably a lot less likely to trigger an SEC investigation than a massive bet right before some big announcement.

Up front caveat: I love prediction markets.

First, don't think of prediction markets as roughly the same as the stock market. They are wildly different. The "stock market" - which is, more broadly and accurate, the regulated exchange of financial instruments - is far more complex and serves vastly different purposes. The stock market is not about bidding on the correct outcome of something in the future. It isn't even, necessarily, about maximizing - in all cases - return on investment. Hedging and managing risk is just as important, if not more so. Much of it is about how to finance the ongoing operations of a firm. Still other parts of it are about building a portfolio that performs to a given objective with understandable and (didn't I already say this) manageable risk.

Most critically, the stock market never "resolves." It is continuous (unless, of course, we actually have a financial meltdown).

Prediction markets are, first, continuous before they're discreet. You have a range of outcomes, though most commonly two. People are free to trade their confidence on those outcomes (via price). That's it. Can this be manipulated to work like the stock market? Yeah, kind of. Except, the bids you make on Kalshi or Polymarket don't actually represent ownership in anything. There's no preference in liquidation (a la senior debt etc.) It's just a bet on what will, eventually, happen. It's a truth discovery mechanism.

Therefore, insider trading is actually great. If someone has better information, we want to know about it, and the market ought to reflect this. That a prediction market about Maduro being deposed even kicked off the night before the op is valuable info! Would I bet into it? Probably not. Which brings me to point 2:

Don't bet on things - directly - that can have insiders. The easy example is something like weather temperatures they are natural phenomena - nobody knows, for sure, what the weather will be tomorrow. There are other examples which are more indirect -- will Mike Johnson be speaker of the house at the end of next year? That requires a vote and no one knows what that vote will be until, perhaps, the very final hours before it happens. There is no insider here until after a certain time and, even then, it isn't a "hard" insider the way this Maduro thing probably was. It isn't hard to look at a market and go "how much insidering could there be?" If you want to bet into it, that's fine, that's your decision.

The knee jerk aversion to insider trading is mostly a product of a lot of Enron era hectoring by Congress and the press. (Fun fact: Enron wasn't even really insider trading so much as straight up fraud). To me, the bigger problem is that the overregulation of the markets makes insider trading "a thing" as the kids say. If markets were open 24/7 (as they should be), companies could choose to report whatever and whenever they wanted, there would be a lot less rigidity. The game would "move faster" and so trying to cheat at it via insider moves wouldn't be as profitable. Open and free flowing information means there is less opportunity to profit from having "special" information because so little of any information can be special when it's all "out there." The government created the space for insider trading to be a problem. Prediction markets show that it isn't a problem and, in fact, gets us faster to "truth".

If Maduro had had people watching the prediction markets closely he could have used the info to go hide in a bunker.

It would have been interesting if the insider trading had ended up self defeating.

This is an excellent point! If the insider doesn't have knowledge of a fait accompli already, then it still is somewhat probabilistic. Here, I guess, it depends a LOT on how the market resolution mechanism is built - i.e. "Attempt to depose Maduro" versus "Maduro actually deposed."

Still in all, broacasting insider info too early or too broadly may defeat its value!

Exactly -- if you don't think insiders should leak military secrets, you also shouldn't think they can make bets based on them. It's little different than making a hint about a forthcoming operation to a journalist, which would probably be considered treasonous by many.

It isn't hard to look at a market and go "how much insidering could there be?" If you want to bet into it, that's fine, that's your decision.

I wonder if someone smarter than me could come up with an "insider vulnerability index" that can be affixed to certain markets to give laypeople an approximate idea of how susceptible a given market is to a small cabal of insiders shifting the odds due to private knowledge or access.

Boxing matches being obviously riggable, large weather events being unriggable (unless you're a HAARP believer), and national elections sort of being in the middle.

Do you mean shifting an election market because your cabal knows Candidate A just had a stroke, or shifting an election to match your market?

Mostly the latter.

But, for example, candidates can collude, a candidate can drop out and endorse another, there's a few ways to nudge outcomes with 'guaranteeing' them.

Hell, a candidate could bet against themselves if they know that their opponent is about to drop some really juicy opposition research but also knows most of it is provably false.

I like the idea of predictions markets for hedging, and they can complement other strategies. For example, they can be used in lieu of stock options due to possible mispricings of probabilities. This is distinct though from my contrived example of someone with knowledge in advance of an outcome and then creating the market under the illusion or pretext of uncertainty and then profiting from the asymmetry of information. Or outright insider trading before the expiration, like shortly before the Venezuela attack. Because then there is no uncertainty that is being hedged and you're just profiting from the information asymmetry. This seems much more ethically iffy.

In the case of Mike Johnson , true, it's a binary outcome. But a military strike is not only binary, but also a unilateral decision by a single individual. So being privy to this knowledge makes the appropriate bet a no-brainer, verus predicting House votes.

Markets only exist if you have enough buyers are sellers. There is no one forcing people to bid into the Maduro strike market.

It's a little trite but it's also rite right; don't play in markets that have a strong "insider-ability"

If the public image of these prediction market companies becomes rife with stories of insider trading, anyone who doesn't insider trade is going to be understandably pissed. Because prediction markets are zero-sum, if a standard user spends time and mental energy placing a well-thought investment in a prediction market and some inside trader swoops in and capitalizes, that's going to leave a sour taste and disincentivize them from using the site. I'd guess that there are a whole lot more standard users than inside traders, so this could lead to some serious problems retaining their user-base. Perhaps this is a bit far-out, but eventually these sites could become dominated by inside traders seeking to effectively launder money with minimal involvement from anyone who doesn't insider trade.

If a standard user spends time and mental energy placing a well-thought investment in a prediction market and some inside trader swoops in and capitalizes, that's going to leave a sour taste and disincentivize them from using the site.

Hopefully that teaches them to expend a bit more mental energy thinking "hmmm, how many people might possess private information that will let them beat me in this market despite all my research?"

Perhaps this is a bit far-out, but eventually these sites could become dominated by inside traders seeking to effectively launder money with minimal involvement from anyone who doesn't insider trade.

To me that's a dream outcome. I'd like to just hook up to an API that pulls prediction market odds in real time (but doesn't TRADE on them) so I have a preternaturally accurate 'Oracle' I can query about uncertain events. Make the insiders work for me, rather than trade against them.

And eventually people will probably build 'insurance' products on top of these markets, which requires them to be more accurate and liquid. "Oh you're worried that your wedding day might be rained out? We'll sell you a contract that pays out 10x if it happens to rain on that day in that location."

I’ve always thought every government worker with a security clearance should be allowed to insider trade as a way to make up for their lower salaries than in the private sector.

This comment may be more applicable to state-government employees than to federal-government employees.

@anti_dan

Employees of my state government definitely have low wages in comparison to private industry. Resignations for higher-paying non-government jobs were continual during my time there. I saw multiple highly-regarded employees, including one person who was widely considered a shoo-in for future director of my entire department, leave for private industry.

@greyenlightenment @Amadan

Pension is 1/100 of salary per year of tenure for federal workers (based on contributions of 4.4 percent of salary—Amadan's figure of 6 percent appears to be incorrect), but 1/60 of salary per year of tenure (two-thirds higher than federal government) for employees of my state government (based on contributions of 7.5 percent of salary).

They definitely have stable employment. I am ignorant of the details of the health-insurance situation.

What percentage of federal workers with a clearance are actually underpaid these days? The GS salary structure is not miserly, particularly if you are somewhere other than Northern Virginia, and the feds have often recruited for more permanent positions (places like the DOJ are often temporary places of employment for strivers and are outliers) middling candidates. Paired with stability of employment and the generous retirement programs and it seems like a good deal for a lot of them. Particularly given in a lot of these positions, maintaining clearance once you are out of government is not guaranteed and losing it would mean losing your private sector position.

What percentage of federal workers with a clearance are actually underpaid these days?

The people responsible for the successful execution of the Maduro capture added at least $100 billion in value to the US Equity market. There is no way they are being fairly compensated.

The stock market gaining $100 billion in valuation is easily within a standard deviation of movement

Eh, the stock market went up, but it's not necessarily a result. Why would deposing Maduro help the US equity markets that much?

Yeah, the biggest problem they'd get into for that isn't the SEC regulation violations.

but they get huge pensions, stable employment, top tier healthcare packages and other perks

but they get huge pensions

The old pension system which only boomers have was fairly generous (though still not "huge"), but the current one gives you at most 33% of your highest annual salary after 30 years of service, and requires around a 6%4.4% contribution.

stable employment

Have you been paying attention to Trump's second term?

top tier healthcare packages

Feds get access to Blue Cross/Blue Shield and Kaiser and a bunch of other health plans, but generally not "top tier" ones (or if they take the top tier it's very expensive). The government pays an employer contribution but it's not like feds are getting free or executive-level health care.

and other perks

Nothing that isn't pretty standard (and often better) in private industry.

Have you been paying attention to Trump's second term?

the DOGE layoffs were single year outlier of otherwise stable employment and good job prospects . 90% of the reduction was voluntary and only 10% through formal termination

To add to what @Amadan said:

Anecdotal, but people I know at state level agencies are seeing an influx of applications from federal level employees for essentially the first time in history.

Historically, state level work is minor league and federal level is The Show. AUSAs are overqualified to be local ADAs, are better paid, went to better schools, have better exit opportunities into private practice. An ADA aspires to work for the US Attorney, rarely the reverse.

Now, local DAs are reporting a good number of well qualified AUSA's applying for jobs at the county DA. That is water flowing uphill. Ditto state environmental departments, attorneys general, parks departments, etc.

Barroom speculation and rumor is that these AUSAs are concerned about job security, worried about being forced to participate in political prosecutions for reasons both cynical (I might face consequences when the worm turns) or ideological (I'm not going to sign my name to false indictments), and are frustrated with incompetent appointees in charge.

But assistant prosecutors in particular are generally pretty right wing and very law and order, so it's particularly notable that they're trying to get out.

This kind of talent shift is both a notable sign of something going on in the bureaucracy, and a long term power shift between state and federal agencies.

This is only partially true.

The goal was to disrupt federal employment as something people think of as stable and secure. The administration knew that they had to do something damaging enough that the next administration can't just undo it in the new president's first month in office. This has certainly been accomplished. Many of the "voluntary" reductions were because of the fear of imminent layoffs and the administration making it clear that those who didn't take the deal would be facing involuntary termination.

The assumption that federal employment is stable and secure (let alone a "sinecure") is no longer valid.

The deal feds used to implicitly be offered was lower pay and benefits in exchange for stability- layoffs were very rare and of course being terminated is difficult (though not as difficult as some people think). Now they get lower pay and benefits, and the current administration has made it very clear they want to get rid of as many of them as possible and will do what they can to accomplish this. They may or may not be successful, but the intention was to go right for the feds who had the attitude last time that they could just wait Trump out.

Lockheed employees are not poor in retirement either.

Ultra niche markets would obviously be rife with insider betting. Fool and his money, etc.

yeah as long as there are fools with money, there will always be someone looking to separate them.

Reading the cases, the SEC is extremely aggressive about pursuing insider trading to protect investors and the notion of the 'fairness of the market'.

In the comments, one thing I have observed is the willingness of people to defend insider trading.... Does this sound insane to anyone else?

It doesn't to me. "Insider trading is good, actually" is not a fringe position, albeit it's a minority view to the dominant one that insider trading should be illegal. This section of the Wikipedia article summarizes it pretty well, that insider trading should be legal for free speech reasons and that it leads to more efficient markets and faster information dissemination. I'm somewhat indifferent.

Why isn't everyone doing this, if they aren't already?

In the States, government agencies such as the FBI, DOJ, SEC, and CFTC are pretty aggressive at catching securities insider trading and even commodities insider trading. And now shadow trading too, using inside information to trade not in a security in itself, instead a different but correlated one.

There's more room in sports gambling though, to pull it off. Back in the day (and maybe they still do) sports gamblers would form consortiums and share information. Where different people will each tail different niche sports teams in Bumfuck cities to hopefully gain some private knowledge and then pool their knowledge together. However, sportsbooks tend to have a larger implicit bid-ask spreads than securities and commodities markets, and the more niche the market the larger the bid-ask spread. So you'd need to get it right a high percentage of time, do it over a long period of time, and/or get lucky with a few big bets. But doing so can also catch the eye of the FBI...

In the States, government agencies such as the FBI, DOJ, SEC, and CFTC are pretty aggressive at catching securities insider trading and even commodities insider trading. And now shadow trading too, using inside information to trade not in a security in itself, instead a different but correlated one.

But this is assuming it's illegal. I predict a similar outcome for prediction markets, where laws against insider trading are enforced, even for non-financial outcomes such as prediction markets for music sales. There is nothing a government agency wants to do more than expand the scope of its enforcement. KYC/AML is the obvious way. There is already a bill in the works https://www.axios.com/2026/01/05/venezuela-polymarket-prediction-insider-trading

But if this represents a sort of nebulous/grey area where the legality cannot be delineated as it is for the stock market or stock options, then it's rational to do this even if it's dubious ethically.

Because prediction markets are basically gambling and always have been. The stock market at least represents productive assets (or used to) that can be used to raise capital for firms and provide value to investors in terms of growth or dividends. There is no asset in a prediction market, just betting on a certain outcome. Same shit with sports betting or casino gambling. It's shitty, unproductive behavior, but for some reason the rationalist community endorses it because it helps to provide more quantitative information as to the mood of the population towards a specific topic.

but sports betting is highly regulated through. I agree it's gambling, but the idea of regulation is to project the illusion of 'fairness' and also to regulate money flows such as in the context of organized crime and taxes. As per regulation, a casino's 'house edge' cannot exceed a certain percentage, for example.

Coincidentally, insider trading was discussed just a few days ago here.

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