6 ms·

Ok, but isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling? So

Ok, but isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling? So like, which is it, is insider trading expected, or are these just gambling sites that should be illegal in many jurisdictions?

tptacek 6mo ago
Yes. This argument doesn't even apprehend insider trading laws on regulated securities markets in the US, where the crime is about theft, not fairness.
- mbesto 6mo ago
  Correct. This is an important distinction. Matt Levine has a good take on this. His informal, distilled definition is essentially: - There is a time gap where insiders know something material and the public does not. - Someone with access to that material nonpublic information, who is not supposed to use it for personal gain, trades on it anyway. - That conduct is treated by courts as a deceptive scheme against the less‑informed trading counterparty and against the information’s rightful “owner.” In other words - you profit at another person's expense (e.g. stealing) because you have information and the other person doesn't. Two scenarios: (1) a US Naval Officer knows about a strike 24 hours before it happens and places a bet against someone who doesn't have knowledge about the strike. (2) Neither a US Naval Officer knows about a strike 24 hours before it happens and someone who doesn't have knowledge about the strike do nothing. Scenario 1 is (or should be) illegal because the officer is using the information for personal gain, when the information was explicitly given to them for national defense reasons (thus violating the rightful owner clause).
  - tptacek 6mo ago
    Scenario 1 is illegal because it gravely violates military secrecy laws.
    - mbesto 6mo ago
      That wasn't my point but okay.
      - tptacek 6mo ago
        I'm not disagreeing with you!
fontain 6mo ago
Prediction markets don’t need to surface private knowledge, they can surface sophisticated interpretations of public knowledge. They are certainly gambling if you’re an unsophisticated rube (which is most of the users).
- curt15 6mo ago
  How does one "interpret" public knowledge to time bets so accurately right before Trump's announcements?
  - Karrot_Kream 6mo ago
    I mean that's why insiders are being investigated right? But sometimes the answer is more difficult than it seems. Is a mid level military officer an insider? If you overheard a conversation on Capitol Hill are you an insider?
  - fontain 6mo ago
    First, you’re describing the insider trading that is not permitted. Second, the majority of prediction markets are predicting utterly mundane things like sports. The tiny number of news grabbing markets are not representative.
alephnerd 6mo ago
> isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling No. Their defense is that they are a gamified platform for futures contracts and hence should fall under CFTC regulation. The CFTC also cracks down on insider trading, but it took time for them to write regulations to catch up with prediction markets. It is now a priority [0] and they have just started a paid whistleblower [1] programs specifically to catch insider traders within prediction markets. [0] - https://www.lw.com/en/insights/new-cftc-enforcement-director-speaks-on-priorities-insider-trading-in-prediction-markets-and-coop https://www.lw.com/en/insights/new-cftc-enforcement-director... [1] - https://www.whistleblower.gov/whistleblower-alerts/Insider_Trading_WBO_Alert.htm https://www.whistleblower.gov/whistleblower-alerts/Insider_T...
- ssharp 6mo ago
  On the Polymarket homepage right now, one of the featured markets is whether or not Bitcoin will be up or down over the next 5 minutes. It's hard to justify that as anything more than illegal gambling. I find prediction markets to be interesting on two fronts: 1) They like a really good way to determine the probability of something happening, which is interesting for events like elections 2) It provides an avenue for smart bettors to take advantage and sharpen their skill, whereas they get severely limited or banned from traditional sports books However, it seems like all incentive structures for the markets and consumer behavior will steer these things to degenerate gambling.
  - Karrot_Kream 6mo ago
    Polymarket is not CFTC regulated, it's considered illegal in the US. CFTC does not allow betting on securities prices. Cryptocurrency is a bit of a gray area because it's not considered a registered security. N.B. it becomes a bit frustrating to talk about financial and regulatory things on this site because the level of knowledge is generally "I read some articles on social media about markets" level.
    - alephnerd 6mo ago
Karrot_Kream 6mo ago
Prediction Markets, unlike many gambling sites, create a marketplace for odds. There's no house taking positions like in certain casinos or on DraftKings. Market makers offer shares in Yes and No while bettors buy and sell these odds to each other or to market makers.
- pwillia7 6mo ago
  when have we ever defined gaming/gambling as 'a thing where the house takes a rake' ? I don't understand this argument and it always feels disingenuous when brought up.
  - Karrot_Kream 6mo ago
    Er it's not. Gambling where the house takes a cut is considered a form of commercial gambling and is often made illegal or has stipulations applied to it. If you're asking about why prediction markets fall under the CFTC, this is actively evolving but generally prediction markets are considered to be under the CFTC because they can be used to hedge against events. For example if you're trying to do business in Oman but you're worried about Iran tensions spilling over, you could take a Yes position on an Iran conflict bet as a hedge. You may lose business but can make some of it up in the hedge. "Gambling" the concept legally is very complicated and has a lot to be understood, so I'd suggest doing some searching or LLM asking if you want an intro on philosophical definitions or the legal landscape.
    - teeklp 6mo ago
      This is gibberish.
      - Karrot_Kream 6mo ago
        You're not providing actionable feedback.
    - tptacek 6mo ago
      You have managed to conjure a definition of "gambling" that excludes casino blackjack.
chao- 6mo ago
If all one cares about is the accuracy of predictions (i.e. setting aside value judgements vis-a-vis society or fairness), it does seem like "insider trading" should make prediction markets more accurate.
- notahacker 6mo ago
  It makes them more accurate at the time the insider places the bet. But to maximise profit, they are incentivised to misdirect before they place the bet (and worse still from society's perspective, are incentivised to take counter-intuitive or downright harmful actions to profit at the expense of people who bet on the view that it made no sense for them to do that)
  - tptacek 6mo ago
    How does this trade work? Nobody knows who the insider is, they only see market direction.
    - notahacker 6mo ago
      You are a spokesperson or decision maker for an entity which is bet on, like a sports team or the government. You publicly indicate that you are going to do one thing (probably the thing that makes most sense), so the market bakes that into their assumptions and offers favourable odds for bets on doing the other thing. Then you place your bet shortly before you do the other thing. (it's true that low level insiders might have limited influence on the actual outcome, but the current suspicion with prediction markets is that some of the participants do have that influence, or are being intentionally helped by people that can)
      - mbesto 6mo ago
        This gets into game theory and doesn't follow a predetermined flow like you're suggesting. It's a bit like playing poker...does the guy who just went all in have pocket Aces or not?
bowmessage 6mo ago
Agreed. So who are the outsider chumps taking the other ends of these bets? At this point, it doesn’t make sense to participate unless you’re an insider.
- wasabi991011 6mo ago
  You can be an outsider with expertise, in which case you can still beat the non-expert outsiders. So now who are the non-expert outsiders and why would they bet? Outsiders who think they are experts but are wrong.

tptacek 6mo ago

Yes. This argument doesn't even apprehend insider trading laws on regulated securities markets in the US, where the crime is about theft, not fairness.

mbesto 6mo ago
Correct. This is an important distinction. Matt Levine has a good take on this. His informal, distilled definition is essentially: - There is a time gap where insiders know something material and the public does not. - Someone with access to that material nonpublic information, who is not supposed to use it for personal gain, trades on it anyway. - That conduct is treated by courts as a deceptive scheme against the less‑informed trading counterparty and against the information’s rightful “owner.” In other words - you profit at another person's expense (e.g. stealing) because you have information and the other person doesn't. Two scenarios: (1) a US Naval Officer knows about a strike 24 hours before it happens and places a bet against someone who doesn't have knowledge about the strike. (2) Neither a US Naval Officer knows about a strike 24 hours before it happens and someone who doesn't have knowledge about the strike do nothing. Scenario 1 is (or should be) illegal because the officer is using the information for personal gain, when the information was explicitly given to them for national defense reasons (thus violating the rightful owner clause).
- tptacek 6mo ago
  Scenario 1 is illegal because it gravely violates military secrecy laws.
  - mbesto 6mo ago
    That wasn't my point but okay.
    - tptacek 6mo ago
      I'm not disagreeing with you!

fontain 6mo ago

Prediction markets don’t need to surface private knowledge, they can surface sophisticated interpretations of public knowledge. They are certainly gambling if you’re an unsophisticated rube (which is most of the users).

curt15 6mo ago
How does one "interpret" public knowledge to time bets so accurately right before Trump's announcements?
- Karrot_Kream 6mo ago
  I mean that's why insiders are being investigated right? But sometimes the answer is more difficult than it seems. Is a mid level military officer an insider? If you overheard a conversation on Capitol Hill are you an insider?
- fontain 6mo ago
  First, you’re describing the insider trading that is not permitted. Second, the majority of prediction markets are predicting utterly mundane things like sports. The tiny number of news grabbing markets are not representative.

alephnerd 6mo ago

> isn't the idea that prediction markets surface private knowledge a big part of the defense as to why they shouldn't be treated as illegal gambling No. Their defense is that they are a gamified platform for futures contracts and hence should fall under CFTC regulation. The CFTC also cracks down on insider trading, but it took time for them to write regulations to catch up with prediction markets. It is now a priority [0] and they have just started a paid whistleblower [1] programs specifically to catch insider traders within prediction markets. [0] - https://www.lw.com/en/insights/new-cftc-enforcement-director-speaks-on-priorities-insider-trading-in-prediction-markets-and-coop https://www.lw.com/en/insights/new-cftc-enforcement-director... [1] - https://www.whistleblower.gov/whistleblower-alerts/Insider_Trading_WBO_Alert.htm https://www.whistleblower.gov/whistleblower-alerts/Insider_T...

ssharp 6mo ago
On the Polymarket homepage right now, one of the featured markets is whether or not Bitcoin will be up or down over the next 5 minutes. It's hard to justify that as anything more than illegal gambling. I find prediction markets to be interesting on two fronts: 1) They like a really good way to determine the probability of something happening, which is interesting for events like elections 2) It provides an avenue for smart bettors to take advantage and sharpen their skill, whereas they get severely limited or banned from traditional sports books However, it seems like all incentive structures for the markets and consumer behavior will steer these things to degenerate gambling.
- Karrot_Kream 6mo ago
  Polymarket is not CFTC regulated, it's considered illegal in the US. CFTC does not allow betting on securities prices. Cryptocurrency is a bit of a gray area because it's not considered a registered security. N.B. it becomes a bit frustrating to talk about financial and regulatory things on this site because the level of knowledge is generally "I read some articles on social media about markets" level.
  - alephnerd 6mo ago

Karrot_Kream 6mo ago

Prediction Markets, unlike many gambling sites, create a marketplace for odds. There's no house taking positions like in certain casinos or on DraftKings. Market makers offer shares in Yes and No while bettors buy and sell these odds to each other or to market makers.

pwillia7 6mo ago
when have we ever defined gaming/gambling as 'a thing where the house takes a rake' ? I don't understand this argument and it always feels disingenuous when brought up.
- Karrot_Kream 6mo ago
  Er it's not. Gambling where the house takes a cut is considered a form of commercial gambling and is often made illegal or has stipulations applied to it. If you're asking about why prediction markets fall under the CFTC, this is actively evolving but generally prediction markets are considered to be under the CFTC because they can be used to hedge against events. For example if you're trying to do business in Oman but you're worried about Iran tensions spilling over, you could take a Yes position on an Iran conflict bet as a hedge. You may lose business but can make some of it up in the hedge. "Gambling" the concept legally is very complicated and has a lot to be understood, so I'd suggest doing some searching or LLM asking if you want an intro on philosophical definitions or the legal landscape.
  - teeklp 6mo ago
    This is gibberish.
    - Karrot_Kream 6mo ago
      You're not providing actionable feedback.
  - tptacek 6mo ago
    You have managed to conjure a definition of "gambling" that excludes casino blackjack.

chao- 6mo ago

If all one cares about is the accuracy of predictions (i.e. setting aside value judgements vis-a-vis society or fairness), it does seem like "insider trading" should make prediction markets more accurate.

notahacker 6mo ago
It makes them more accurate at the time the insider places the bet. But to maximise profit, they are incentivised to misdirect before they place the bet (and worse still from society's perspective, are incentivised to take counter-intuitive or downright harmful actions to profit at the expense of people who bet on the view that it made no sense for them to do that)
- tptacek 6mo ago
  How does this trade work? Nobody knows who the insider is, they only see market direction.
  - notahacker 6mo ago
    You are a spokesperson or decision maker for an entity which is bet on, like a sports team or the government. You publicly indicate that you are going to do one thing (probably the thing that makes most sense), so the market bakes that into their assumptions and offers favourable odds for bets on doing the other thing. Then you place your bet shortly before you do the other thing. (it's true that low level insiders might have limited influence on the actual outcome, but the current suspicion with prediction markets is that some of the participants do have that influence, or are being intentionally helped by people that can)
    - mbesto 6mo ago
      This gets into game theory and doesn't follow a predetermined flow like you're suggesting. It's a bit like playing poker...does the guy who just went all in have pocket Aces or not?

bowmessage 6mo ago

Agreed. So who are the outsider chumps taking the other ends of these bets? At this point, it doesn’t make sense to participate unless you’re an insider.

wasabi991011 6mo ago
You can be an outsider with expertise, in which case you can still beat the non-expert outsiders. So now who are the non-expert outsiders and why would they bet? Outsiders who think they are experts but are wrong.