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).
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.
Nice in theory,
in practice, the money begins creating the facts about the world.
Sometimes to the detriment of innocents.
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.
What facts were revealed here?