[alun]

This may be an unpopular opinion, but calling it insider trading misses the entire point of what prediction markets are built for.

The goal of a prediction market is to be able to forecast the future as accurately as possible. Restricting informed traders weakens the mechanism that makes them useful.

Money signals how strongly someone believes something will happen.

[kmaitreys]

No.

Please look at the name again. It's "prediction" market. So if you have credible information before resolution, it's no longer a prediction.

Also your premise is incorrect. The goal of prediction market isn't that. It's to represent wisdom of crowd. Informed traders who can influence the outcome are no longer using any wisdom, nor they're part of the crowd.

[alun]

The actual economic theory behind prediction markets (if you read Robin Hanson's work, efficient market hypothesis, etc.) is that these markets work precisely because informed traders bring private information into the price. That's literally the core mechanism that underpins them.

Yes prediction markets represent "wisdom of crowd", and they do this by rewarding people who contribute correct information. So informed traders are the ones making the system work, and they're putting actual money on the line to back up their claim. Without them you're just left with uninformed guesses, which isn't really "wisdom of crowds", it's noise.

[streetfighter64]

It might be aligned with the purpose of the market, but I have to ask, what exactly is the reason that a non-insider would ever make a bet? You know beforehand that insiders will sit on the information until just before it goes public (the larger the public sentiment against a certain position, the more you make by betting on it with hidden information). Likewise, there's a negative incentive for insiders to release information, and allowing the "forecasting of the future as accurately as possible" to actually happen.

Like, if I know a month ago that the US will invade Iran, and I make a big bet on "Yes", then that of course gives people information, which in turn negates my edge. So it's entirely self-defeating. It's actually way better to try to convince the general public that it won't happen through non-market means, or perhaps even buy a few "No" shares just to drum up public opinion. You'll get that money back anyway once the bet resolves.

Just imagine: the boxing champ is planning to take a dive in the third round. You think he'll make his bet a week in advance?