This issue reveals the gap between the prediction market premise and what these things actually are, which is: unregulated prop gambling venues.

If things like Kalshi and Polymarket are prediction markets, then, at least as far as the intrinsic concerns of the market itself are concerned, insider trading is a good thing; literally part of the point.

If they are instead how they function today, then insider trading is a game-breaking fairness issue, like having a device to read your opponents cards in a poker game, and then they're a real problem.

You can tell what these businesses think their platforms are for by how they handle these issues.

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Traster 3 hours ago | parent | next [-]

Even if you buy the idea that Kalshi is a prediction market whose mechanism is gambling but whose product is accurate predictions, you don't have to buy the idea that insider trading is a good thing. Yes, in the rare occasion there exists someone with (a) insider information (b) confidence their actions won't impact their insider position and (c) access to capital - then you get extremely accurate predictions.

In every other case you get worse predictions. Since those who are predicting have to now construct their bets such that they know they can always get run over by an insider. So in the general case it reduces the ability of the predictors to push the market in the right direction, because they always have to risk manage the fact that someone out there might run them over with insider information.

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stouset an hour ago | parent | next [-]

Not just insider information, but insider access. If the outcome of some prop bet is under the control of a handful of people, those people can trivially conspire to produce whatever outcome is most profitable to them.

	▲	tptacek an hour ago \| parent [-]
		If the outcome of a prop bet really is fully controlled by insiders, so that those insiders are making decisions based on betting outcomes, then allowing that betting to occur seems antisocial and counterproductive to begin with. This is another problem with the Polymarket/Kalshi species of "prediction market".

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michaelt 2 hours ago | parent | prev | next [-]

If people with more information profit at the expense of people with less information, isn't that exactly how things are supposed to work?

If you're approaching a market with hard facts, detailed comparisons and solid evidence; while I'm trading in the same market based on vibes and intuition, surely it's expected that your returns would be better, and mine worse?

	▲	knowsuchagency an hour ago \| parent \| next [-]
		Short answer, no. If you're betting on an outcome that can be controlled by an individual or small group, the incentive is for them to game the system by doing the OPPOSITE of what the prediction is so as to make the most money. "When a measure becomes a target, it ceases to be a good measure" https://en.wikipedia.org/wiki/Goodhart%27s_law
	▲	throwaway173738 an hour ago \| parent \| prev \| next [-]
		If you’re betting with a friend that they won’t have chicken for dinner, what’s to stop them from having chicken for dinner? What if you bet with a complete stranger who also took the reverse of that bet from your friend?
	▲	pjc50 an hour ago \| parent \| prev \| next [-]
		A fact is a statement about past. A bet is contingent on the future. Insiders can change the facts.
	▲	CodingJeebus an hour ago \| parent \| prev [-]
		You're confusing collusion with being informed. The concept of market rationality is based on the premise that all participants in said market more or less have access to the same information. Fools can choose to not be informed before making a trade, but passing along sensitive information that contradicts market rational behavior causes people to lose trust in the market. Perfect example from today. Allbirds just announced that they're going all in on AI infra, skyrocketing the stock. Had I bought a million dollars worth of Allbirds yesterday, everyone would think I'm an idiot. But now, they would think I have insider information and would no longer want to participate because it would make no sense to buy Allbirds yesterday unless I knew the announcement was coming.

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Karrot_Kream 2 hours ago | parent | prev | next [-]

If an insider with large amounts of capital makes a big trade, they also end up discouraging other trades. Once you see a huge position taken, LPs are going to scale back their liquidity in other positions to manage risk that the insider is going to stomp them. Any trader monitoring position sizes is going to probably scale back their trading. All of this contributes to less trading and less commission on these markets.

Sports betting is so profitable for prediction markets because they're mostly unsophisticated retail flow making lots and lots of trades, giving the platforms commission. If an insider just pushes market prices in their direction the platforms are going to lose on volume.

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tyre 2 hours ago | parent | prev | next [-]

> Since those who are predicting have to now construct their bets such that they know they can always get run over by an insider.

The average person does not do this. People trade individual stocks all the time, despite every other market participant (banks, hedge funds, etc.) having better information and technology.

It's why institutions like Citadel pay for retail order flow. They know that retail traders don't have an edge and, if anything, often end up being negative signal.

	▲	Karrot_Kream 2 hours ago \| parent [-]
		No but sophisticated traders will also get stomped by this. Just because you're a sharp oil trading shop doesn't mean you can combat an insider who knows when Brent is about to spike in price due to insider knowledge.

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tptacek an hour ago | parent | prev [-]

You can see all across the responses here the encoded premise that the point of a prediction market is to enable people to profit from making accurate predictions. No. The point is for the price to be accurate; for the market to make an accurate prediction. That someone with a P1 prediction can roll over people with less confidence is a feature.

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RobRivera 3 hours ago | parent | prev | next [-]

Courts have ruled that these markets are regulated under the CFTC. So they are regulated. Now as to whether it is properly regulated, thats a different matter.

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c7b 2 hours ago | parent | prev | next [-]

Where do you see a difference? Like you said, there is a libertarian argument that can be made for why insider trading is desirable. If the bet is easily manipulable, like how many times someone will visit a place, then the rational response is for others not to bet on that market. The same argument still holds.

You can disagree with the libertarian argument, but I don't see how you can say that Polymarket et al. are something other than a prediction market. Can you explain where you see the difference?

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kasey_junk 2 hours ago | parent | next [-]

It’s not a libertarian argument for prediction markets that they should have insider trading, it’s the point of the exercise. The way they work is to incentivize people with knowledge to externalize the knowledge to the market. The concept of fairness doesn’t even make sense in that context.

So if a market is trying to maintain a veneer of fairness it’s just using a prediction market as cover and is something else.

	▲	c7b 2 hours ago \| parent [-]
		So the difference between a theoretically pure prediction market and Kalshi is ... this interview? The CEO saying that he thinks others, who do not answer to him in any way, will be doing something to enforce some notion of fairness. If you're being that puritan about the definition, then having a "real" prediction market is completely impossible. Because actors like the DOJ do not wait for a statement by the Kalshi CEO to bring charges. And rational actors will know and anticipate that, and hence preemptively comply. So you never get the unfettered version of a prediction market. I don't think it makes sense to be that puritan about a definition that the thing it's trying to define becomes an impossibility. Polymarket, Kalshi et al are clearly prediction markets in the messy reality that we live in, and we're figuring out as we go what the legal reality of a real-world prediction market is and should be.

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tptacek an hour ago | parent | prev [-]

I'm not a libertarian. My basic policy take on these "markets" is that they should be outlawed.

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cyanydeez 2 hours ago | parent | prev [-]

Your surmise cuts both ways though; much of the stockmarket is fundamentally doing the same thing. It's just the prop bet is a normalized white collar activity.

I'd like regulations to cut into that too, so the market isn't just a weird "Did trump tweet something deranged today?"

	▲	tptacek an hour ago \| parent [-]
		Fairness isn't the justification for insider trading enforcement in the stock market, either.