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