Crazy. I was just writing a post titled "The Prediction Market Experiment Has Failed" with insider trading being one of the big problems.
I've spoken with people who are major advocates of prediction markets in their ideal form, to people building competitors to Polymarket/Kalshi, and to people who regularly bet on prediction markets for fun. My conclusion is that almost none of the original "theory" has borne out in practice, at least by trading volume. The overwhelming majority of trades on prediction markets are either gambling on information that has no value outside the market, crypto, or sports betting.
I’m a pretty liberal person in general, but my most conservative take is that gambling should just be flat out illegal. I understand that that’s not practical to enforce.
I used to hold to “it’s distasteful, but shouldn’t be illegal.” The last few years of the DraftKings-ification of everything has seen me swing around even harder; not just sports betting but the casino should be abolished as blights on civilization.
Prediction markets are an even more nakedly corrupt incarnation of the degen gambler impulse, which makes it all the more galling when they advertise themselves as *liberating markets for the little guy*
If Kevin Hart tells me about parlays one more time I’m going to lose it.
I've been following your thoughts on this with interest, theahura. One point here:
> We don’t know who the guy was, nor do we know what role they played in the decision to capture Maduro. Most likely, it was some random grunt who heard the news by being in the right place at the right time. But there’s a specter of doubt — what if it was a member of the Chiefs of Staff? A member of the Cabinet?
Can't all the high up people already insider trade with literal impunity? That's why they all get well-above-market returns:
In this case, letting little guys insider trade is hugely democratizing! We are bringing "equity" to the little guy, at last!
I know, I know. It's still bad on net, but way less bad / corrupt than what we've already got, which nobody seemingly cares about.
Your broader "consider the incentives" argument is pretty powerful. It doesn't work for stocks as much, because generally a single person doesn't have the leverage to move a stock up or down a lot, and there are insider trading laws for all non-politicans.
If we wanted to keep prediction markets, I think all we'd have to do is expand current insider trading laws / investigatory apparatus to include the prediction markets, and if the platforms aren't currently KYC'd, do that. Because the SEC is actually pretty good at that, and it really shapes the behavior in finance accordingly.
- yes, they kinda can insider trade with impunity, and most people think that's bad. I think the trade off is that we need to incentivize smart people to go into public service, and until we raise salaries by millions of dollars that probably won't happen, so I take it as a bit of an acceptable trade off. There are enough regulations around making trades public in the future that I think do enough to offset really egregious things, and insider trading is still essentially limited to a very small set of assets and not, like, direct outcomes themselves
- the democratizing thing is the problem! Some things shouldn't be democratized. To a first approximation, I trust ~0 people to handle decision making power. The ones I do trust, I have vetted as being capable of doing the right thing even when under significant pressure to do the contrary. Democratizing insider trading gives everyone way more decision making power than they had before, and I do not trust the average person to make the decision between "not bringing down cloudflare" and "bring down cloudflare and make a few hundred thousand" correctly
> think the trade off is that we need to incentivize smart people to go into public service, and until we raise salaries by millions of dollars that probably won't happen
Lol, wut? You think we're incentivizing *smart* people this way??
It seems pretty clear to ME that they may have a certain kind of low cunning, but are mainly optimized on the conjunction of "being good at both lying and fundraising."
And that fits like a glove with an insider trading easy button, but obviously if anyone in that situation was actually smart, they'd be getting well above 40% returns.
I agree we'd be way better off with societal and incentive structures like Singapore, but they have a whole pipeline and apparatus, starting with recruitment of the top smartest and talented people at the end of HS / beginning of college, and 6/5 year terms with no term limits, and a single dominant party, so they can actually plan longer than "1 week from now" and execute things over a longer timeline, versus our own politicians who focus literally 80% of their efforts on fundraising and re-election, and 20% on "flashy bullshit and posturing that looks good to my base," and 0% on "solving any actual problems" or "thinking more than the next election cycle ahead."
> I do not trust the average person to make the decision between "not bringing down cloudflare" and "bring down cloudflare and make a few hundred thousand" correctly
Sure, but only an insider could do this, and if there were insider trading laws, they'd be investigated and stomped on, right?
I do agree the current equilibrium has fundamentally perverse incentives, and you're doing a great job pointing that out.
> Lol, wut? You think we're incentivizing *smart* people this way??
> It seems pretty clear to ME that they may have a certain kind of low cunning, but are mainly optimized on the conjunction of "being good at both lying and fundraising."
Yea, I mean obviously this is not the *right* way to incentivize smart people! Unfortunately most people who go into public service right now are actively doing it as a form of charity, which is not ideal. But there's just no appetite to raise politician salaries
> Sure, but only an insider could do this, and if there were insider trading laws, they'd be investigated and stomped on, right?
Yep! I agree with your suggestions re expanding insider trading laws and KYC laws
Crazy. I was just writing a post titled "The Prediction Market Experiment Has Failed" with insider trading being one of the big problems.
I've spoken with people who are major advocates of prediction markets in their ideal form, to people building competitors to Polymarket/Kalshi, and to people who regularly bet on prediction markets for fun. My conclusion is that almost none of the original "theory" has borne out in practice, at least by trading volume. The overwhelming majority of trades on prediction markets are either gambling on information that has no value outside the market, crypto, or sports betting.
I’m a pretty liberal person in general, but my most conservative take is that gambling should just be flat out illegal. I understand that that’s not practical to enforce.
I used to hold to “it’s distasteful, but shouldn’t be illegal.” The last few years of the DraftKings-ification of everything has seen me swing around even harder; not just sports betting but the casino should be abolished as blights on civilization.
Prediction markets are an even more nakedly corrupt incarnation of the degen gambler impulse, which makes it all the more galling when they advertise themselves as *liberating markets for the little guy*
If Kevin Hart tells me about parlays one more time I’m going to lose it.
I've been following your thoughts on this with interest, theahura. One point here:
> We don’t know who the guy was, nor do we know what role they played in the decision to capture Maduro. Most likely, it was some random grunt who heard the news by being in the right place at the right time. But there’s a specter of doubt — what if it was a member of the Chiefs of Staff? A member of the Cabinet?
Can't all the high up people already insider trade with literal impunity? That's why they all get well-above-market returns:
https://imgur.com/a/sIYOe4k
In this case, letting little guys insider trade is hugely democratizing! We are bringing "equity" to the little guy, at last!
I know, I know. It's still bad on net, but way less bad / corrupt than what we've already got, which nobody seemingly cares about.
Your broader "consider the incentives" argument is pretty powerful. It doesn't work for stocks as much, because generally a single person doesn't have the leverage to move a stock up or down a lot, and there are insider trading laws for all non-politicans.
If we wanted to keep prediction markets, I think all we'd have to do is expand current insider trading laws / investigatory apparatus to include the prediction markets, and if the platforms aren't currently KYC'd, do that. Because the SEC is actually pretty good at that, and it really shapes the behavior in finance accordingly.
Two thoughts
- yes, they kinda can insider trade with impunity, and most people think that's bad. I think the trade off is that we need to incentivize smart people to go into public service, and until we raise salaries by millions of dollars that probably won't happen, so I take it as a bit of an acceptable trade off. There are enough regulations around making trades public in the future that I think do enough to offset really egregious things, and insider trading is still essentially limited to a very small set of assets and not, like, direct outcomes themselves
- the democratizing thing is the problem! Some things shouldn't be democratized. To a first approximation, I trust ~0 people to handle decision making power. The ones I do trust, I have vetted as being capable of doing the right thing even when under significant pressure to do the contrary. Democratizing insider trading gives everyone way more decision making power than they had before, and I do not trust the average person to make the decision between "not bringing down cloudflare" and "bring down cloudflare and make a few hundred thousand" correctly
> think the trade off is that we need to incentivize smart people to go into public service, and until we raise salaries by millions of dollars that probably won't happen
Lol, wut? You think we're incentivizing *smart* people this way??
It seems pretty clear to ME that they may have a certain kind of low cunning, but are mainly optimized on the conjunction of "being good at both lying and fundraising."
And that fits like a glove with an insider trading easy button, but obviously if anyone in that situation was actually smart, they'd be getting well above 40% returns.
I agree we'd be way better off with societal and incentive structures like Singapore, but they have a whole pipeline and apparatus, starting with recruitment of the top smartest and talented people at the end of HS / beginning of college, and 6/5 year terms with no term limits, and a single dominant party, so they can actually plan longer than "1 week from now" and execute things over a longer timeline, versus our own politicians who focus literally 80% of their efforts on fundraising and re-election, and 20% on "flashy bullshit and posturing that looks good to my base," and 0% on "solving any actual problems" or "thinking more than the next election cycle ahead."
> I do not trust the average person to make the decision between "not bringing down cloudflare" and "bring down cloudflare and make a few hundred thousand" correctly
Sure, but only an insider could do this, and if there were insider trading laws, they'd be investigated and stomped on, right?
I do agree the current equilibrium has fundamentally perverse incentives, and you're doing a great job pointing that out.
> Lol, wut? You think we're incentivizing *smart* people this way??
> It seems pretty clear to ME that they may have a certain kind of low cunning, but are mainly optimized on the conjunction of "being good at both lying and fundraising."
Yea, I mean obviously this is not the *right* way to incentivize smart people! Unfortunately most people who go into public service right now are actively doing it as a form of charity, which is not ideal. But there's just no appetite to raise politician salaries
> Sure, but only an insider could do this, and if there were insider trading laws, they'd be investigated and stomped on, right?
Yep! I agree with your suggestions re expanding insider trading laws and KYC laws