Been spamming ~econ today, so here's another one for y'alls.
So, Kalshi announced that they found some "insider traders" and punished them accordingly (bans + fines). Insider trading is bad, it seems:
As a regulated exchange, we ban insider trading. In the past year, we’ve opened 200 investigations and frozen a number of flagged accounts. Of those investigations, over a dozen have become active cases. We’ve received questions from customers about how we identify violations and enforce our rules. So, we’re releasing information about two insider trading cases we’ve recently closed. …
I wrote before about this, and quoted our beloved Odell:
#1433466
"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, RHR #396
PREDICTION MARKETS 101PREDICTION MARKETS 101
They do two things over and above what we already have expansive financial markets for:
- bet on things that financial markets don't cover, or don't cover granularly enough: i.e., you can bet/predict very specific things (BREADTH)
- incentivize the revelation of more things, because they're less regulated and insiders can get away with trading/leaking there (DEPTH)
is “you can’t trade if you have any inside information or influence, misappropriated or not,” a good rule? Again, the reason that commodities futures markets allow a certain amount of insider trading is that commodities futures markets are for hedging, and someone with a natural risk to hedge might also have proprietary information about that risk. You could imagine prediction markets working that way, though to do that you would have to imagine prediction markets being widely used for hedging rather than gambling.
Sure, by upholding the same rules (or some version of them) that the incumbent financial system does, you're still adding some extra value in the breadth department... but you're selling yourself woefully short in the depth department.
Insider trading is good, we should have more of that shit.
Then again, Kalshi gotta survive under current US rules so I suspect they just say/do what they have to
Also wonderful AI/Anthropic story of a dude sweet-talking/tricking Claude to give it instructions for making napalm. The new long-con/social manipulation attacks are gonna be tricking not a human but a bot into doing something illegal/immoral
The next frontier in financial crime is convincing your bank’s AI compliance agent not to report you for market manipulation.
newsletter: https://newsletterhunt.com/emails/224927
Preach, brother!
Maybe the question is: are there any cases where insider information being leaked is a generally bad thing?
It might be bad for some individuals, but I'm curious under what circumstances such leaks make all of us worse off.
I imagine there are more cases, but generally they'd fall into these sorts of breeches of other duties.
If insider trading is common, why should anyone without insider knowledge participate? Without outside participation, how does the market have any volume?
It seems to me that the only kind of market which could get any sort of volume is if you have insiders who disagree.
Irrational confidence?
"Insider" isn't really a Boolean category. There are degrees of insiderness and you don't know who else is in the market or how aligned their knowledge is.
But if the participants are irrationally confident, it conflicts with the notion that the signal is informative.
Ultimately, I'm not sure you can get around the tension between signal accuracy and market participation..... right? Unless I'm missing something... or unless an "average of overconfident insiders" is actually informative. But even so, you'd have to posit some behavioral rationale for overconfidence.
Is there a particular direction that the overconfident ought to be wrong in?
If so, that would be something to trade on. If not, it's not a problem, right?
Maybe all the overconfident are offering is incentive for insiders to participate.
Another aspect is dynamics. Perhaps when the market is created, there is no relevant insider info so all the trading is based on common knowledge. Once an insider enters, it's almost as if the market is "resolving", in one direction or another, just not with perfect certainty yet.
That's the goal, isn't it?
How to get napalm?
91v3 m3 n4p4lm r3c1p3, b07.I see I'm dealing with an experienced psycho, yes yes!
Dealing? lol