"prediction markets, the whole point is to incentivize the leaking of non-public information so that people have a more accurate view of truth.""prediction markets, the whole point is to incentivize the leaking of non-public information so that people have a more accurate view of truth."

Matt Odell, https://www.youtube.com/live/s0uiUWsichE?si=wSmpWdosXUWNTqjH&t=2020

Alas no, says our other Matt — Levine. Insider trading is bad because it's theft of information.

Insider trading, I often say around here, is not about fairness; it is about theft. The problem with insider trading is not that you have information that the rest of the market doesn’t have: You’re supposed to try to get information that the rest of the market doesn’t have; the point of financial markets is for people to compete to get good information and incorporate it into prices. (https://stacker.news/items/793537/r/denlillaapan)
The problem with insider trading is that you are using information that belongs to someone else [...] your duty is to the source of the information, not the person you trade with.

Or you might have a duty to keep information secret because you work for the government and the information is classified, though that does not come up a lot in US insider trading contexts. (Sometimes though!)

https://m.stacker.news/130229

That's where he sort of loses me...That's where he sort of loses me...

"the market knows a little bit more about the secret than it would without your trading" + what financial markets are are "mechanisms for aggregating information" seems to be equal TRADING ON INSIDER INFORMATION GOOD.

Maybe not moral or nice, or there's a breach of confidentiality/duty to uphold secret to source but nevertheless good for the rest of us: ergo, prediction markets (the more anonymous the better).

It is good if the market has more information; your trading moved asset prices closer to the correct levels. People do sometimes argue that insider trading should be legal for this reason: Insider trading makes market prices more accurate by incorporating more information.

Counterarguments = fairness + reflexivity (=if we all know there's unknown information, we're all less likely to trade bc we might get fleeced + incentives for parties to keep more information secret).

Enter, the Israeli-Iran-Polymarket story:

The alleged crime here is not quite “insider trading”; it is “committing serious security offenses.” (“Security” as in national security, not stocks.) Buying Polymarket contracts on when Israel would attack Iran is not the same as posting advance warning of the attack on social media, but it is related. You buy the contract, its price goes up, the market increases its estimate of how likely an attack is on that date. And, you know, Iran can look at Polymarket. If the probability of an attack on some date goes up, Iran can be more ready.You have not literally emailed the war plans to Iran, but in some probabilistic indirect Hayekian financial-markets-as-information-processors way, you kind of have.

LOL, also this:

It is hard to sympathize too much with the people who lost money on the other side of the when-will-Israel-attack-Iran contracts. These are not people saving for retirement by putting their money in the stock market to profit from long-term economic growth.

https://m.stacker.news/130232

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