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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.
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.
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.
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?
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.
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.
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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.
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