A prediction market user made $436k betting on Maduro's downfall
bbc.com
bbc.com
This is not the stock market. There are no public reporting rules for the weather, song lyrics, what Kim Kardashian eats tomorrow.
Another way to win is to use them for hedging exposure elsewhere. That also doesn't require inside information.
Betting on the weather? Go build weather stations. Betting on Kim Kardashian? Go interview her.
This "go find valuable information" approach is broadly applicable to making money.
This private info is often even considered "trade secret", which is protected against being stolen and spread.
They only need to be fair inasmuch as it serves that goal. I don't think it wouldn serve that goal to forbid insider trading?
(Why do we forbid insider trading in the stock market? Not because it's unfair. Because it makes the market worse at doing what we want it to do, which is funding the most productive enterprises).
If, say, Enron insiders could've shorted their own stock, that would have improved accuracy and thereby diverted more funding to more productive enterprises.
I guess there could be second-order effects when insiders can actually change the outcome, which is why athletes aren't allowed to bet on their own games.
He didn't say that it doesn't. It obviously does make stock markets more accurate.
But it tends to drive down the total amount of money available to be invested in stocks, which is compatible with the claim that it makes the market worse at funding productive enterprises.
That seems like a big claim. For most market participants, there's always a counterparty that's so much more sophisticated that it doesn't make a difference if they're an insider or not.
You don't need to guess. That's exactly why it's illegal: It creates bad incentives, similarly to e.g. taking out a life insurance policy on a random person you have no financial dependence on.
May even have been referred to as Dead Peasants Insurance.
For example, if you happen to be a bartender or a waiter who accidentally overhears material non-public information, you're free to trade on that.
Nice in theory,
in practice, the money begins creating the facts about the world.
Sometimes to the detriment of innocents.
I do not think this is a reasonable position. The problem is that predicting "real facts about the world" creates a situation where you could take out an place a sizable bet on your neighbors house burning down. Allowing prediction markets is, thusly, inherently problematic. Allowing them to be anonymized with insider information, and you've a recipe for disastrous externalities.
If you think prediction or stock markets should be "fair" then you have a very bizarre definition of fair (one that's compatible with a game that only rich people can win).
Also desiring "fairness" implies that to imply the market's primary purpose is as a game. If it's just a game, it's nothing but toxic gambling.
ANYWAY: pointing to one possible case of misuse and then leaping to "inherently problematic" is pretty weak IMO. Hopefully you can tell I'm not a prediction market booster, there's a lot about them that I think it's pretty suspect. But this is a pretty lame line of reasoning IMO.
"Someone might shoot people with it" -> valid reason for gun control. Guns are for shooting people.
"Someone might stab someone with it" -> not a valid reason to ban knives. We already ban stabbing people. We take precautions to try and mitigate the dangers of knives, because they have a very big upside.
Words matter - “prediction markets” just smooths over grift by making it sound reasonable.
If it helps, you can think of the money made as the payment to a confidential informant for information that contributed to a more complete picture of the world. It just happens via a distributed algorithm, using market forces, rather than at the discretion of some intelligence officer or whoever. The more important the information you have to share, the more it moves the market and the bigger your "fee". It's not being a "grifter" to provide true information that moves the market correctly. In fact, this mechanism filters out the actual grifters - you can't make money (in expectation) by providing false information, like traditional informants sometimes can.
This "intelligence gathering" function is the primary goal of a prediction market. It's the only reason it makes sense to even have them. If you turn it into some parlor game where everybody who participates has access to all the same information, then what are we even doing here?
Google might feel differently about whether it's OK in that case, but that's their prerogative.
Ask yourself: If the CIA really needed to know in advance what the top search result was going to be with as much accuracy as possible (for some weird reason, doesn't matter why), how would they go about doing it? Would they spend a bunch of time evaluating all of the public information, or would they just bribe (or otherwise convince) an insider at Google to tell them?
You certainly can, but that's usually called market manipulation, not insider trading.
This is a level of solipsism not worth discussing.
Yes, Superman could be a real person and we all had our minds altered to think he’s a superhero.
Yes, when someone pulls the trigger of a gun pointed at someone’s head, it could misfire and explode in their hand.
The point is that someone influencing prediction markets can push this probability to very, very near zero. So much so, as to make the outcome effectively certain for all intents and purposes.
Literally everyone can burn their neighbor's house down! Everyone has access to "valuable predictive information" when that information is being created by the person making the bet.
Get the last word in if you must. We're going in circles.
I agree, I can see how that's a potential edge case, though I don't think it's as likely to happen in practice as you do. Certainly, anybody who commits a crime to cause a payout should be barred from receiving that payout, though you can tell a plausible story where someone manages to conceal it. I also really really doubt that that's what happened in this particular case.
If everyone has the same information, then whoever does better analysis wins. That's far from a parlor game.
Ideally people with good info and people with good analysis can both make money. (And ideally nobody takes real-world actions to make their bet come true.)
Otherwise, you're arguing that a gun is functionally a blood pressure monitor.
My point is you can’t have this without creating a massive incentive for people to create events, and it’s inherently easier to create disorder, which hurts everyone in a free society.
> pointing to one possible case of misuse and then leaping to "inherently problematic" is pretty weak IMO.
This is like saying nuclear weapons are “one possible case of misuse of nuclear technology.” Yes, obviously, but it’s serious enough to justify massive regulation of nuclear technology.
I’m not saying prediction markets should be illegal. I’m saying that they should have a very small maximum wager, require public disclosure of who is taking which bets, and it should not pay out if the actor has any connection to agents that create the change in the world.
Sports gamblers have known about how problematic this concern is forever. Organized crime used predictions markets they could influence (sports betting) as a major source of revenue throughout history.
What facts were revealed here?
Not nearly. If nothing else, there's still time arbitrage and at least some amount of information processing required.
Even efficient markets need somebody doing the leg work and making them so, especially when unsophisticated traders are participating too.
These guys arent even trying to hide their tracks anymore, and polymarket/kalshi are well aware of this
You can't have this amount of obvious manipulation and expect the average retail consumer to join. Same reason why there hasn't been mass consumer adoption of crypto. People just don't feel safe.
The average consumer is easily manipulated so there's not really a contradiction.
And people do get upset and feel cheated when the bet isn't "fair." We just saw a big scandal where various athletes are changing their behavior in order to enable their buddies to win big in sports betting.
I really don't think that "well, we should just educate people about the fact that prediction markets are actually battlefields of insider information and their purpose is not to enable gambling on the future but instead to give society some model of future outcomes" is going to stick.
The volatility and wild swings are a feature, not a bug, to retail investors who like this stuff. Investing in crypto is mainstream now. It's been advertised on TV for years. Download Robinhood, put money in, and trade the swings.
It's popular to "trade" crypto. The retail investors aren't buying to use it. They're not even doing crypto things with it, they're just getting an entry in the database of their investment platform. Everyone knows it's heavily manipulated and gamed, but they want to come along for the ride and make some money with the manipulators.
Prediction markets are exciting to the same audience for the same reason: Maybe outlier things can happen and you'll guess correctly ahead of time. That's the draw.
Not for members of the US Congress.
It would take years to rebuild them. And even if they do by some miracle, next republican president will issue pardons like Trump did.
This sort of activity is illegal only in theory.
And current administration removed people and groups capable to handle difficult convoluted white collar cases, so the best bet is that law enforcement will ignore these and will go only after simple low level frauds - because that is all they are competent to do now.
> It involves a lot of grey areas and is not something you can just easily automatically flag.
Successful, high confidence trades by traders who do not make them frequently are trivial to detect statistically. There exist automated systems which detect this. It's extremely difficult to make highly profitable trades based on insider information without making abnormally confident trades.
I suppose a big fund that frequently makes high confidence bets based on legitimate, deep, research could theoretically hide such activity, but I don't see that as a ver realistic option.
>so the best bet is that law enforcement will ignore these and will go only after simple low level frauds - because that is all they are competent to do now.
Insider trading is often one of the simplest white collar crimes to pursue, and it's just good PR because the public always likes it when the feds are going after rich corporate types.
The reason it's so simple is because you can automatically get a very high-confidence list of targets who are likely engaged in insider trading, it's also feasible to link many of the traders to insiders in an automated manner using tools like accurint. Even doing this manually makes your life really easy, you start by doing things like checking who each of these individuals follows on social media.
A very sophisticated operation could hide this better, but any highly lucrative trades will fundamentally stand out. Any particularly profitable insider trading will be detected and eventually investigated.
>We kind of know it is going on, because people in positions to have insider information are disproportionally "winning" those bets, but that all that goes about it.
This sentence kind of suggests to me that you might be thinking of some atypical case of insider trading, perhaps involving politicians rather than corporate insiders?
Which is specifically unlikely to cover senate people or even most people having access to inside information in this or that special circumstances.
> This sentence kind of suggests to me that you might be thinking of some atypical case of insider trading, perhaps involving politicians rather than corporate insiders?
The OP specified "members of the US Congress" as his group of interest. However, I think that yours "it is atypical to be engaged in insider trading that does not involve high frequency of trades" is just incorrect.
You don't have to be a frequent trader to make a lot of money insider trading, you do have to make very high confidence (i.e. risky) trades though. A single one of those will stand out, not the frequency. Unless you're a habitual options trader or something, such trades will instantly be a huge red flag.
>The OP specified "members of the US Congress" as his group of interest. However, I think that yours "it is atypical to be engaged in insider trading that does not involve high frequency of trades" is just incorrect.
My bad, I missed that. I suspect it's inherently harder to investigate members of congress for anything, but I also suspect that there's far less illegal insider trading happening by members of congress than people often suggest. I'm not sure there's really any very good evidence that congresspeople are beating the market, someone tried to look at the numbers here https://www.maximum-progress.com/p/congressional-insider-tra...
Regardless of what happens, it is not the case that insider trading isn't illegal for members of Congress, except for some technicalities:
- The act of 2012 does not purport to make insider trading by congressmen illegal. Rather, it purports to make explicit that insider trading by congressmen was illegal before it was passed.
- Insider trading isn't illegal for anyone, in the particular sense that there is no law making it a crime (or any other kind of violation). It exists purely as a construct of the SEC's interpretation of a law that doesn't mention it.
In general prediction markets can’t be “correct” or “incorrect” - for instance if a prediction market says there’s a 60% chance of an event occurring, and it doesn’t occur, was the market right or wrong? Well it’s hard to say - certainly the market said the event was more likely to occur than not, but only just, and who knows? Maybe the event _only just_ occurred, and very nearly didn’t!
So generally we say a prediction market is “correct” if it is “well calibrated”, which is to say that if we took all the events that the market said had a 60% chance of occurring, then approximately 60% percent of these events occurred (with the same holding true for all other percentages).
On this note, an interesting phenomenon that used to occur was “favorite-longshot bias”, where markets would consistently overestimate the likelihood of longshot events occurring - so events that the market predicted would occur 10% of the time would only occur 5% of the time. What’s fascinating is that once people realized that this bias exited, they began to exploit it by making bets against longshots, which had the effect of moving the market and removing the biases, making the markets well calibrated. It’s a pretty neat example of the efficient market hypothesis in action!
If you want to go be pedantic about it and select one metric, markets are evaluated on their Brier Score or some other Proper Scoring Rule, not accuracy.
However, I prefer calibration as a high level way to explain prediction market performance to people, as it’s more intuitive.
With that in mind, what do mean exactly.
Edit: just found the answer myself: “accuracy measures the percentage of correct predictions out of total predictions, while calibration assesses whether a prediction market's assigned probabilities align with the actual observed frequency of those outcomes”
We try to measure the increased usefulness of the latter with proper scoring rules.
It seems unlikely since Nobels aren't awarded posthumously.
I'd weigh the accuracy by how much money is at stake...
Even then, a "perfect" prediction market need not be accurate, if people use it for hedging. If some low probability event is really bad for me, I may pay over odds (pushing the implied probability up) to get paid if it happens. The equilibrium probability may be efficient, reasonable and biased.
Who's to say a dead person can't have done the most to "promote peace conferences" as mentioned in Nobel's will? These days, I'd say dead people make a larger net contribution to peace than most politicians.
I'm not sure the same(any) rules apply.
It would make the likes of Kissinger getting it easier to understand.
Anything under 3%/year of time until decision is going to have pretty limited predictive value within that range. Anything starting above that range will end up hitting that floor rather than going to zero because of the difficulty of finding a counterparty.
That doesn't mean there aren't other explanations. It could mean that No holders expect to incur an opportunity cost greater than the risk free rate. Combine that with how there's low liquidity (there's less than $300 on the book buying Yes, and at 2 cents or less), and so we could just be seeing the effect of random fish temporarily distorting the price. It could also mean that the risk of a smart contract failing is making it not worth the hassle for a market maker to come in at such a slim margin and low volume.
> That doesn't mean there aren't other explanations.
Why do you need other explanations, when the observed probability can be precisely and fully explained by opportunity cost?
AFAIK there are coins that pay better (some give you exposure to t-bills).
For most events like this, you'd want to see the market spike to 0% or 100% as the deadline approached. And in particular for an event that happens, you want to see the spike to 100% before it happens. Remaining at 60% until after the fact is wrong because the occurrence of the event becomes more certain as it gets closer.
Being "well-calibrated" as you describe is a very bad quality metric in the sense that two sets of predictions can achieve the same calibration profile while differing markedly in quality. The farther the predictions are from 50%, the better they are, but your calibration metric doesn't take this into account.
One longstanding example is "vapourware", but the deception carried out today goes even further, IMHO
What if the non-believers and realists could use "prediction markets", in addition to short selling, to bet against them
Maybe they are already doing so, but I have not seen any examples
Note the lack of links and that all of these Maduro reports originate from X which is rampant with polymarket grifters claiming secret insights into how the big bets are made.
Perhaps somebody here can provide a Polymarket link (not screenshots) to the proof?
I'm not saying the BBC has been scammed here but the only link I've found to the alleged account 404s. Perhaps its been taken down by Polymarket?
Anyway for anybody new to this, even if this checks out please - as ever - be cautious about the claims of easy money.
Looks like Polymarket took the profile down but it’s still available on the Internet Archive
Probably won't happen actually, since they can just do blatant insider trading on the stock market instead.
But you don't become a Billionaire by having a risk averse "well, that's enough" mindset.
I would think the biggest question is if it's worth exploiting poly market. Getting 400k out of such an event sounds as peanuts and I am not so sure that scales to 4m+.
https://www.thewrap.com/media-platforms/journalism/nyt-wapo-...
> Donald Trump Jr, the president's son, serves in advisory roles at Kalshi and Polymarket.
When you have insider information it's typically most profitable or at the very least less risky to exploit it at the earliest moment, but if you know you have a long head start you can do it slowly to keep from bidding up the price. In either case a giant bet only hour before tells me it's someone who only found out about the operation shortly before it happened.
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(1) Is an excellent point but they bought "will happen in the month of January" for something that occurred at the beginning of January, so basically the worst case scenario for exploiting bet expiry.
(2) Makes sense on face but I had read elsewhere there was a 2 week window. So at no point would it go outside the January window of the bet, there was no point in waiting once January 1st hit.
In this case a rational insider with a priori knowledge far ahead of time would have either placed a large bet first thing January 1st or started to ease in first thing on January 1st, as waiting would convey ~no advantage and only present risk other insiders would bite the apple first.
2. Operations like these aren't set in stone weeks in advance. There may be general planning, but the exact hour is only decided at the last moment.
If you're the president's son, ~$400k is probably not worth your time.
https://www.newsweek.com/donald-trump-oil-companies-venezuel...
However his mind is so far gone it's hard to be sure he actually knows what he's saying.
Granted: that's what almost every Polymarket user is actually doing. But that's a bad thing. The insider whales are the only ones actually using it for its intended purpose.
Interestingly, it doesn't necessarily incentivize them to publish the detailed results of their investigations. They're incentivized to reveal what they expect to happen (based on how they bet), but not necessarily incentivized to reveal why they think so, or how they know. E.g. if you became able to predict the weather more accurately than other models over some timeframe, prediction markets would incentivize you to reveal (some aspects of) your predictions, but not your method for making those predictions.
https://www.overcomingbias.com/p/its-your-job-to-keep-your-s...
Apparently there's also something about the duration of a White House press conference where the press secretary may have been deliberately helping some people?
I continue to think prediction markets are potentially extremely useful and valuable, but I feel like there's a huge conceptual muddle about why people would (1) care about an outcome of a market and (2) be willing to bet on the outcome of a market. And perhaps (3) whom else they would be happy or unhappy to have participating in the market with them. I doubt people will be super-content with prediction markets until those issues are a bit clearer for more participants in any given market. (And I don't know exactly how we can make them so.)
Robin Hanson can credibly claim to have invented prediction markets as we understand them today.
I can see this, and I guess maybe my issue is with the phrasing of "aggregating" insider information. Because you aren't just aggregating insider info, you are also aggregating non-insider information, but no one (but the insider) knows what is right.
Is there different types of prediction markets then? One where there is a true insider and one without? For example, you could take bets on weather it will rain on Saturday. People can make educated guesses, but no one really knows (no insider). On the flip side, Kanye could create a bet on whether he will run for president. He would be the only insider, so again, aggregating insider and non insider information.
What's the difference between a "Monday it will rain" market and a NCAAF prop bet on a team's rushing yards? I could argue that DraftKings prop bets are actually more like prediction markets than these "will it rain" bets. People actually do have directional information to contribute to sports propositions!
(I think online sports betting is evil.)
How would you define the difference?
Cat bond premiums absolutely bet on near-term weather odds. I’d argue they’re prediction-esque.
Are you arguing that weather forecasts (based on either sophisticated modeling or just extrapolating average historical data) are not a thing?
You're not really aggregating non-insider information, because in these cases, it's not really "information", it's just (at best) rational guessing or (at worst) gambling.
But yes, Kalshi and Polymarket essentially aggregate gambling, rational guesses, and insider information that's likely to be correct. It's a losing game unless you're an insider, and these companies profit off of other people's addictions.
Like, prediction markets have questions ranging from what the weather will be in a certain year, to who will win elections, to what stock prices or exchange rates will be, to whether companies will announce specific products, to whether particular people will start dating, to whether a specific person will say a specific word during a conference (some of the Manifold "prop bets" for Manifest).
These are not the same kinds of questions in terms of whether there are insiders at all or who the insiders are. Maybe we can't expect prediction markets to have the same dynamics in all of these cases.
Depending on what you want out of a prediction market, there's probably a sweet spot in terms of whom you should expect (or want) to be trading in it.
In the most exogenous events, those that are most outside of the control of individuals or groups, I think Robin Hanson hoped (in proposing "idea futures") that people would be incentivized to invest in research in order to gain a statistical edge in the market, but also assumed that there wasn't anyone who was inherently drastically better positioned to get information about the question than anyone else. E.g. "I will spend $X to get a better estimate of this probability (hopefully by otherwise ethical means?), and that will make my expected return from buying $Y worth of prediction contracts greater than $(X+Y)". Indeed not something retail investors or gamblers should probably participate in.
It's also true that in some cases where there are true insiders it can give the insiders a financial incentive to reveal confidential information. From the point of view of trying to get the most accurate possible estimate of the likelihood of future events, that would indeed also be a success, even if the process was "unfair" to non-insiders.
Although maybe the villainy would come in more from deceiving people about whether or not an event was under your control, more than merely encouraging people to bet on an event that was clearly and unambiguously under your control.
Non-insiders can't make predictions? I'm not into betting as a hobby but I make minor bets with myself or friends on topics with clear win-loss conditions in areas of politics where I consider myself knowledgeable. I'm pretty good at it since I find it easy to distinguish between results I'd like to see vs what I expect to actually happen.
If it helps, draw a line between "entertainment" and "enterprise", and use whatever term you like for uses on the "entertainment" side of the line. Either way: it has stark implications for the notion of insider impropriety.
Some kinds of gambling are truly random (unless they are scams) and no prediction is possible. Other kinds involve some degree of skill and predictive power. For example, people can make predictions on races based on past form, even though the element of chance can't be eliminated. It seems like you're trying to redefine 'prediction' to mean 'anticipated outcome as assessed by the most informed' in order to disqualify the validity of any opinions held by non-insiders.
I get that you want everyone to be aware of how prediction arguments were originally a fun way for experts to drive decision making without writing ever-longer arguments for their position. But you seem to be overlooking the the fact that objections are not so much to insiders disrupting hte prediction market as the impropriety of government officials or their special friends cashing in on military adventurism. Said government officials defend engaging military adventures without consent or even notice to Congress by citing security, yet placing big bets on markets to make a quick profit is highly insecure.
The irony here is that the one bank-shot argument I'd see in the medium term for "insider trading" enforcement at places like Polymarket is Nevada Gaming Commission-style gambling regulation.
Well, it's the legal theory underpinning insider trading laws in much (all?) of the EU.
And the US might have a different legal theory underpinning their regulations, but practically, it largely amounts to the same effect, so under POSIWID, it's questionable whether the difference matters much.
> no, it's not at all true that the only rational actors on financial markets are insiders.
Then a non-insider-trading prediction market should be possible and at least somewhat useful too, no? You'd essentially create incentives to do thorough research and analysis of public information and publish the results.
Whether it's practically possible to enforce is a different question.
Honestly, of all the vices, I think I pity gamblers a lot. It’s just so visible and understandable to see the harm. Something like being too into porn or drink, those are less visible harm. Where running out of money is comprehensible to even a child.
>But if someone knows the actual weight, no one would play.
Now what if someone in the audience knew the weight of an average elephant, giving them an advantage. Would people still bet. I would guess yes, but they wouldn't bet as much as the person who did because they have less information.
While having better information may make it more likely for you to win, it is not surefire. Things can change last minute.
Polymarket needs a second and third oracle network
That said, at some point it would then be more accurate to call them reality modification bounty markets.
Imagine the massive value of having such a world changing event in advance (the search volume alone probably affected an order of magnitude more in online advertising revenue at least). $430k?! Are you F’ing serious?
Crime is legal.
You shouldn't be surprised though, name any market, all markets are full of manipulation and insiders.
You are a poorly paid Russian commander. You open an account on polymarket or Kalshi and place a bet about specific Russian troop movements, perhaps ones that would be disastrous to your war effort even, to up the leverage. When you’ve accumulated a sufficient position, you order the troops to be moved, perhaps even out of accord with orders from above. Your front collapses, your soldiers are routed, and you get rich.
These markets are dangerous. We will learn this lesson eventually.
In theory a fun example, but practically it doesn’t play out the way you’re describing.
We don't need new laws to solve your putative problem.
Legal systems certainly should restrict markets where the incentivize is sufficiently direct (e.g. actual date of death prediction markets). There's a blurry line between what constitutes a sufficiently direct incentive, sure, but there are lots of blurry lines when it comes to legal systems.
But it's obviously also ripe for abuse. Any govt. employee can start trading on the side, 100% untraceable.
I've never used it, but continue to see posts about employees making bets on privileged information and that being legal.
My editor just turned in her grave. And she's still alive.