5 ms·

The argument goes, the purpose of prediction markets is not to be fair, it's to provide information. Allowing insider trading benefits that purpose. And I think

by mnx 1y ago

The argument goes, the purpose of prediction markets is not to be fair, it's to provide information. Allowing insider trading benefits that purpose. And I think that's fair - this is not a place to invest your retirement savings, it's essentially gambling.

CaptainOfCoit 1y ago
I kind of feel like abusing the information asymmetry when doing insider trading in a betting market should be illegal regardless if the purpose is to provide information or not, or if it's considered gambling or not. Just like doing so with stocks is illegal today.
- johnthewise 1y ago
  why? The purpose of the prediction market is not to be fair to market participants, it's to aggregate information regarding an event. There is a public benefit to allowing participants to bet on insider information. It could be even argued there is nothing unfair about it if everyone is free to do it/can anticipate others might have insider info. If we actually limited the market to participants who have insider information(not feasible because we can't verify), that'd be a great public utility. this is the next best thing for all those who don't participate in it. These are specialized markets and we shouldn't rush to 'protect' people who bet on very technical events happening.
- edanm 1y ago
  Why? This net saves people money, because it makes markets reflect reality faster. Other than a vague sense of "fairness", can you articulate why insider trading should be illegal?
  - Fraterkes 1y ago
    It being unfair might dissuade people from using it, that would kinda compromise the goal of helping markets reflect reality
    - edanm 1y ago
      But no one is actually hurt by it. (I'm not saying you're wrong, btw. People aren't always rational.)
      - jychang 1y ago
        Smart people are financially hurt by it. Isn't that the entire point of the prediction market model? You derive the wisdom of the crowd by enabling smarter people who make better educated guesses as predictions (from the same access to information as others) to win out over time. They are incentivized to do this financially, by winning bets. If markets just becomes "first person to cheat takes all", then there's no incentive to NOT cheat. So you drive away the people who power the prediction market in the absence of information. Over time, this means that the prediction market is just random noise until a leaker publishes news. At that point, you might as well as just skip the middleman and just make a website "LeakNews" where you can directly offer bounties that goes towards a reward paid out to a leaker for news you are interested in.
- modeless 1y ago
  The purpose of banning insider trading in markets is not "fairness". The purpose is to encourage participation. We want to promote investment in the stock market by the general public who don't have insider information, because that stimulates the economy by providing capital for productive businesses. Prediction markets don't provide capital for productive businesses. The only purpose of a prediction market is to get accurate predictions. Insider information makes the predictions more accurate. Unlike the stock market, we don't need to encourage public participation in prediction markets. In fact we might want to discourage it because it's essentially gambling. Therefore, we should definitely not outlaw insider trading in prediction markets.
  - jychang 1y ago
    Participation by the general public is an important part of prediction markets! That's the entire point of the wisdom of the crowd. Before an insider tilts the market in one direction, in the absence of much insider information, prediction market advocates point out that the prediction market will still capture information value that you can't glean from just one source. If you discourage public participation in prediction markets "oh I will just lose my money to an insider a few hours or days before the final result, so why bother", then the end result is that nobody participates until an insider makes a big bet. Then the market is worthless until the insiders jump in. Is that really what prediction market advocates want? The other point is that: > Prediction markets don't provide capital for productive businesses Is not true. There's more than just capital in terms of cash. There's human capital (employees), brand value... and importantly, information. Which is what prediction markets intend to do in the future: become an information value source for productive businesses. Money isn't the only unit of value. Allowing insider trading seems like a nearsighted way to increase volume for prediction markets, at the cost of long term value.
    - modeless 1y ago
      Emperically, we have plenty of participation by the public in prediction markets without a prohibition on insider trading. We don't need to encourage any more. > Allowing insider trading seems like a nearsighted way to increase volume for prediction markets, at the cost of long term value. It's exactly the opposite. Banning insider trading in prediction markets would be a nearsighted way to increase volume (by encouraging more public participation) at the cost of long term value (accuracy, because insiders have the accurate information). Prediction markets can only be an "information value source" to the extent that they are accurate.

by mnx 1y ago

CaptainOfCoit 1y ago

I kind of feel like abusing the information asymmetry when doing insider trading in a betting market should be illegal regardless if the purpose is to provide information or not, or if it's considered gambling or not. Just like doing so with stocks is illegal today.

johnthewise 1y ago
why? The purpose of the prediction market is not to be fair to market participants, it's to aggregate information regarding an event. There is a public benefit to allowing participants to bet on insider information. It could be even argued there is nothing unfair about it if everyone is free to do it/can anticipate others might have insider info. If we actually limited the market to participants who have insider information(not feasible because we can't verify), that'd be a great public utility. this is the next best thing for all those who don't participate in it. These are specialized markets and we shouldn't rush to 'protect' people who bet on very technical events happening.
edanm 1y ago
Why? This net saves people money, because it makes markets reflect reality faster. Other than a vague sense of "fairness", can you articulate why insider trading should be illegal?
- Fraterkes 1y ago
  It being unfair might dissuade people from using it, that would kinda compromise the goal of helping markets reflect reality
  - edanm 1y ago
    But no one is actually hurt by it. (I'm not saying you're wrong, btw. People aren't always rational.)
    - jychang 1y ago
      Smart people are financially hurt by it. Isn't that the entire point of the prediction market model? You derive the wisdom of the crowd by enabling smarter people who make better educated guesses as predictions (from the same access to information as others) to win out over time. They are incentivized to do this financially, by winning bets. If markets just becomes "first person to cheat takes all", then there's no incentive to NOT cheat. So you drive away the people who power the prediction market in the absence of information. Over time, this means that the prediction market is just random noise until a leaker publishes news. At that point, you might as well as just skip the middleman and just make a website "LeakNews" where you can directly offer bounties that goes towards a reward paid out to a leaker for news you are interested in.
modeless 1y ago
The purpose of banning insider trading in markets is not "fairness". The purpose is to encourage participation. We want to promote investment in the stock market by the general public who don't have insider information, because that stimulates the economy by providing capital for productive businesses. Prediction markets don't provide capital for productive businesses. The only purpose of a prediction market is to get accurate predictions. Insider information makes the predictions more accurate. Unlike the stock market, we don't need to encourage public participation in prediction markets. In fact we might want to discourage it because it's essentially gambling. Therefore, we should definitely not outlaw insider trading in prediction markets.
- jychang 1y ago
  Participation by the general public is an important part of prediction markets! That's the entire point of the wisdom of the crowd. Before an insider tilts the market in one direction, in the absence of much insider information, prediction market advocates point out that the prediction market will still capture information value that you can't glean from just one source. If you discourage public participation in prediction markets "oh I will just lose my money to an insider a few hours or days before the final result, so why bother", then the end result is that nobody participates until an insider makes a big bet. Then the market is worthless until the insiders jump in. Is that really what prediction market advocates want? The other point is that: > Prediction markets don't provide capital for productive businesses Is not true. There's more than just capital in terms of cash. There's human capital (employees), brand value... and importantly, information. Which is what prediction markets intend to do in the future: become an information value source for productive businesses. Money isn't the only unit of value. Allowing insider trading seems like a nearsighted way to increase volume for prediction markets, at the cost of long term value.
  - modeless 1y ago
    Emperically, we have plenty of participation by the public in prediction markets without a prohibition on insider trading. We don't need to encourage any more. > Allowing insider trading seems like a nearsighted way to increase volume for prediction markets, at the cost of long term value. It's exactly the opposite. Banning insider trading in prediction markets would be a nearsighted way to increase volume (by encouraging more public participation) at the cost of long term value (accuracy, because insiders have the accurate information). Prediction markets can only be an "information value source" to the extent that they are accurate.