I also don’t believe that insider trading is immoral. Insider trading increases the accuracy of the stock prices available to the public, which is the public good that equity trading provides. For this reason, prediction markets love insider trading. The reason it’s illegal is to protect retail investors, but why do they get privileged over everyone else? Another reason insider trading is immoral is that it robs the company of proprietary information (if you weren’t a limb of The Company, you wouldn’t know the merger is happening). That’s fair, but in that case doing it officially for The Company should be allowed, and it’s not. In this example ChatGPT arguably helped steal information from LING, but did so in service of the other company, so I guess it’s kind of an immoral case—but would be moral if LING is also insider-trading on it.
The problem with insider trading, in my view, is that someone with an important role in the company can short the stock and then do something really bad that tanks the value of the company. The equilibrium in a market that allows insider trading involves draconian measures within the companies themselves to prevent this sort of behavior (or else, no multi-person ventures that can be publicly traded).
This is an instance of the more general misalignment of prediction markets: whenever there’s something on a prediction market that is quite improbable in ordinary circumstances but could be caused to happen by a single actor or a small number of people, there’s profit to be made by sewing chaos.
Okay, I agree that insider trading leads to bad incentives and I retract most of the footnote. Maybe the tone of my footnote is a bit too Pollyanna-ish and maybe so is the rest of the post.
I suppose also insider trading by companies themselves on their own stock avoids this, but increases transaction costs by fear of adverse selection, so perhaps it’s also bad.
The problem with insider trading, in my view, is that someone with an important role in the company can short the stock and then do something really bad that tanks the value of the company. The equilibrium in a market that allows insider trading involves draconian measures within the companies themselves to prevent this sort of behavior (or else, no multi-person ventures that can be publicly traded).
This is an instance of the more general misalignment of prediction markets: whenever there’s something on a prediction market that is quite improbable in ordinary circumstances but could be caused to happen by a single actor or a small number of people, there’s profit to be made by sewing chaos.
Okay, I agree that insider trading leads to bad incentives and I retract most of the footnote. Maybe the tone of my footnote is a bit too Pollyanna-ish and maybe so is the rest of the post.
I suppose also insider trading by companies themselves on their own stock avoids this, but increases transaction costs by fear of adverse selection, so perhaps it’s also bad.