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Comment by jimlawruk | Hacker News Reader

Isn't there a 50% chance you are betting on the "insider" side of it?

There's a <50% chance you'll make money off of it because it's zero-sum, and if insiders make money on average then other traders (i.e., you) have to lose money on average.

The issue is that the odds aren't actually 50/50 on you buying either side of the trade; one half will look like a better deal (and given public information, it is a better deal) so you'll buy that half. Then when the market resolves, it'll turn out that insiders knew some piece of information that made the other half of the trade a better choice.

So then the person who uses public information is actually the bigger fool than someone who uses no information whatsoever and just picks a side of the bet. If insiders know that a volcano is going to erupt and offers a 50/50 payout, people who know the historical improbability will bet that is will NOT erupt, thinking it is an easy payout. But there will be some idiots out there that bet that it will erupt based on dumb luck.

It's often true - index investors tend to do better than people who follow corporate prononcements.

If that was the case you'd start consistently buying the side that looks worse, which would align with insiders and you'd make money.

The insiders don't consistently have opportunities to profit from their information. It's not every day that the war against Iran changes direction, and that whale has to wait for the next 180 degree turn to make their move.

Yes. It's a conditional probability.

P(W | You're a sucker) = 0.5

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