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The thing is you're still thinking of these insiders as someone who just got a juicy stock tip from a relative.

The much more serious problem is when these insiders actually have their hands on the levers which decide the outcome. It's really no different than a mobster who bets a bunch on money on an unlikely outcome then threatens one side to throw the match.

What possible economic benefit is there to society to allow ordinary people to bet in markets like that?

Would you really like to live in a world where "Will we nuke Iran?" Is a bet you can make? Then someone in government sees how much money they could make if they bet yes & push the button?

This is the entire idea behind the concept of "assassination markets" - "prediction" markets on assassinations that are just thinly veiled ways to crowdsource murders by taking bets that you expect to lose against an "insider" (the killer).

It doesn’t need to be as high stakes as assassination. Any public figure could have a free-money loophole with all the stupid bets on things like whether a certain word would appear in a speech.

If I were famous I could start a pool betting on whether I would post a picture of a my lunch this week. I could stake whichever side has the biggest payout and then just make it happen

And we already have laws against this stuff when it is traditional gambling. For example, a couple MLB players[1] are currently facing 65 years in prison because they would occasionally waste a pitch at the directions of gamblers netting them a few thousand dollars each time they did it. For those not familiar with baseball, a starting pitcher generally throws between 80-100 pitches a game and a reliever throws roughly 10-30. This is basically as low stakes as a sports bet can get, so it makes it all the more attractive to attempt because it feels less like a compromising of morals with the less the participant actually needs to sacrifice.

These prediction markets are now giving even more people the opportunity to make a small ethical compromise in exchange for non-trivial amounts of money without any of the potential legal repercussions of traditional markets or gambling. That type of ubiquitous corrupting influence can't be good for the health of society.

[1] - https://www.cbssports.com/mlb/news/guardians-closer-emmanuel...

Futures contracts were a mistake, god damn

I think this is mixing up two different things: influence and knowledge

> Isn't insider trading on a prediction market only wrong to the extent the insider is violating some duty of secrecy to the company?

Yes.

Prediction markets, for corruption reasons, are regulated by the CFTC. In commodities markets, actors are assumed to be making trades based on propriety information. Hedging is the whole purpose!

> …like it's a stock market where there is some society-level interest in giving participants protection from having less information than insiders.

Ah, no!

Insider trading in the stock market is (usually) only illegal in your first case: when the person trading is violating confidentiality.

It is not about fairness.

Fairness is a poor proxy for whether specific trading is illegal.

For example:

If a company accidentally leaves a press release for a merger publicly available, I happen to guess the URL, and then I trade on it: Unfair (I have access to insider information that other market participants do not) but legal!

If I work at the company, am sent the press release to copy edit, and then trade on it: Illegal. I have a duty to the company not to trade on it.

I don't think your example refutes the fairness heuristic at all.

The first case is completely fair because anybody else could have done the same thing without any special access required.

The second case is unfair because you had to work at the company to get access.

Okay, then imagine you overhear at a bar. Yes “anyone could have” theoretically, but not actually. In either case, you have material non-public information that your counterparty in the market does not.

you got that piece of non public information was not because you are an insider. As long as the bar is not exclusive to insider, i don't see any difference

Isn't it exclusive to people who live in the area of the bar?

What if the bar has a cover charge, so only those who pay get in?

What if the cover charge is $10,000 and the bar is advertised as "the place where public company execs love to come talk to each other about private deals"?

> I happen to guess the URL, and then I trade on it: Unfair

I can argue it is fair - anybody can try guessing the url, you don't have to be an insider to guess it

> I have a duty to the company not to trade on it.

To the company? Or to the stock market, as a participant in it?

Your comment seems to imply that trading based on material non-public information in prediction markets is always okay, which is not the case. The CFTC just made a press release detailing some instances of invalid use of nonpublic information on prediction markets: https://www.cftc.gov/PressRoom/PressReleases/9185-26

Interestingly, the CFTC objects to a political candidate trading on their own candidacy on the grounds that it is fraudulent. So it looks like they could attempt to regulate self-trading quite strictly, at least if that theory holds up after a court challenge.

>> If a company accidentally leaves a press release for a merger publicly available, I happen to guess the URL, and then I trade on it: Unfair (I have access to insider information that other market participants do not) but legal!

Not necessarily. Just because you accidentally left your S3 bucket open and I brute force my way to the link by guessing doesn’t make it legal. It can still be insider information. Insider information is not limited to people who have a duty to the company. If I break into the companies office and steal information and trade on it then it can be insider trading.

No, commenters here simply take into account that predictions markets have historically classified themselves as futures markets and not as gambling.

Allowing information asymmetry, like insider trading, undermines the regulatory argument that keeps these markets legal.

In theory maybe, but in practice companies almost always do care about keeping things like release timing, product status or leadership decisions confidential. Even if they haven't publicly announced a policy about prediction markets specifically, it's usually covered under general confidentiality and acceptable use policies

I think there is a society-level interest. It's very bad for the business environment if every employee of every company has monetary incentives to leak private information. It structurally encourages businesses to set up strict information silos where cross-team collaboration is hard no employee can ever be sure of the broader context of their work.

The insider has perverse incentives as an employee.

I’m probably overlooking something, but if you have insider info, you just bet on that info with certainty. Why would you need to create a different outcome to bet on it?

If I know my company is going to do something on March 16th, I can bet against it happening until that day, and then bet big it will happen that day. I don’t need to influence the company to change what it’s going to do to make money on it.

The problem comes when there are lucrative odds for some unlikely scenario, which you can influence into realisation, and that outcome might be counter to the company's goals (i.e. sabotage)