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