Isn't insider trading on a prediction market only wrong to the extent the insider is violating some duty of secrecy to the company?
And isn't that just between them and their company in a case-by-case sense?
If there was some valuable-to-the-public information that the company did not care about keeping private but just hadn't bothered to make public, for whatever reason, and an insider traded on it on a prediction market, that would only benefit the public's interest in information and would not violate any duty to the company. It'd be a pure win for everyone.
It seems unfair to other traders, the way it would be in the stock market, but in prediction markets (unlike the stock market) all participants are explicitly taking on the risk that somebody else might have better access to information than they do. So it's not subverting the system in the way we have decided it does in stock markets.
A lot of commenters are getting the wrong take here by looking at this like it's a stock market where there is some society-level interest in giving participants protection from having less information than insiders. It's just a different thing.
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).
> 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.
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.
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’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.
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.
>Research shows prediction markets are often more accurate than experts, polls, and pundits. Traders aggregate news, polls, and expert opinions, making informed trades. Their economic incentives ensure market prices adjust to reflect true odds as more knowledgeable participants join.
>If you’re an expert on a certain topic, Polymarket is your opportunity to profit from trading based on your knowledge, while improving the market’s accuracy.
You know what's a great knowledgeable participant? An insider.
I have come to the opinion that every successful tech company is basically just an arbitrage scheme to avoid regulations and extract value based on that advantage.
Airbnb for unlicensed hotels. Uber for unlicensed taxis. Amazon for whitewashing fraudulent products. Bitcoin for unlicensed securities and laundering money.
That's what happens when the majority of people don't actually support the regulations.
If people thought it was wrong to be an unlicensed airbnb or uber, they wouldn't use them. In reality, those regulations are mostly protection rackets and most people don't care about violating them.
From an economic perspective the majority of those regulations destroy economic value and those companies are unlocking value by finding clever ways around them.
you might have been an insider working on the Apple Newton, and being enthusiastic about it you might have broken the rules and traded on your "knowledge"... and you would have lost your shirt. Same with your very knowledgeable enthusiasm about myriad other technologies. Ever wonder why Wall St doesn't show up at HN asking everybody's opinion about AI in order to leverage that info into billions?
an important element of "the wisdom of crowds" is many bits of microknowledge. How many Teslas will be sold next year is very dependent on how much the people who buy Teslas will earn next year (or how secure they will feel in their jobs) working in myriad other industries that have nothing to do with Tesla, along with the price of lithium, tires, and even ... wait for it... gasoline.
Polymarket's words you quote can just as likely refer to the wisdom of crowds. Or even, and this is the subtle part: Polymarket's insiders may believe, like you, that they are creating a market to trade on inside information, and yet they, like you, could be made wrong by the superior sum knowledge of the crowd exerting its invisible hands all together to tank your Apple Newtons.
Yes they are. Polymarket has an ad glorifying a "fictional" scenario where someone gets a job as a janitor in a video game company to bet on related events in polymarket
Isn't insider trading on a prediction market only wrong to the extent the insider is violating some duty of secrecy to the company?
And isn't that just between them and their company in a case-by-case sense?
If there was some valuable-to-the-public information that the company did not care about keeping private but just hadn't bothered to make public, for whatever reason, and an insider traded on it on a prediction market, that would only benefit the public's interest in information and would not violate any duty to the company. It'd be a pure win for everyone.
It seems unfair to other traders, the way it would be in the stock market, but in prediction markets (unlike the stock market) all participants are explicitly taking on the risk that somebody else might have better access to information than they do. So it's not subverting the system in the way we have decided it does in stock markets.
A lot of commenters are getting the wrong take here by looking at this like it's a stock market where there is some society-level interest in giving participants protection from having less information than insiders. It's just a different thing.
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).
3 replies →
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.
3 replies →
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.
> 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?
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
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.
1 reply →
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.
Could also make a case for incentivizing destructive actions by insiders as well. You’re saying I could sabotage my project and make a quick buck?
That's basically what the current US admin is doing.
Excuse me it's called price discovery.
Yeah, Polymarket is explicitly advertising this.
>Research shows prediction markets are often more accurate than experts, polls, and pundits. Traders aggregate news, polls, and expert opinions, making informed trades. Their economic incentives ensure market prices adjust to reflect true odds as more knowledgeable participants join.
>If you’re an expert on a certain topic, Polymarket is your opportunity to profit from trading based on your knowledge, while improving the market’s accuracy.
You know what's a great knowledgeable participant? An insider.
I have come to the opinion that every successful tech company is basically just an arbitrage scheme to avoid regulations and extract value based on that advantage.
Airbnb for unlicensed hotels. Uber for unlicensed taxis. Amazon for whitewashing fraudulent products. Bitcoin for unlicensed securities and laundering money.
The pattern is upsetting.
Bitcoin is not a company
That's what happens when the majority of people don't actually support the regulations.
If people thought it was wrong to be an unlicensed airbnb or uber, they wouldn't use them. In reality, those regulations are mostly protection rackets and most people don't care about violating them.
23 replies →
From an economic perspective the majority of those regulations destroy economic value and those companies are unlocking value by finding clever ways around them.
5 replies →
>Yeah, Polymarket is explicitly advertising this
no, they are not.
you might have been an insider working on the Apple Newton, and being enthusiastic about it you might have broken the rules and traded on your "knowledge"... and you would have lost your shirt. Same with your very knowledgeable enthusiasm about myriad other technologies. Ever wonder why Wall St doesn't show up at HN asking everybody's opinion about AI in order to leverage that info into billions?
an important element of "the wisdom of crowds" is many bits of microknowledge. How many Teslas will be sold next year is very dependent on how much the people who buy Teslas will earn next year (or how secure they will feel in their jobs) working in myriad other industries that have nothing to do with Tesla, along with the price of lithium, tires, and even ... wait for it... gasoline.
Polymarket's words you quote can just as likely refer to the wisdom of crowds. Or even, and this is the subtle part: Polymarket's insiders may believe, like you, that they are creating a market to trade on inside information, and yet they, like you, could be made wrong by the superior sum knowledge of the crowd exerting its invisible hands all together to tank your Apple Newtons.
>Yeah, Polymarket is explicitly advertising this
Yes they are. Polymarket has an ad glorifying a "fictional" scenario where someone gets a job as a janitor in a video game company to bet on related events in polymarket