This article looks critically at the state of current regulation on insider trading, and its traditional role of encouraging investment through assurance that no one is up against someone with special inside knowledge. However, when looking at the role of insider trading in prediction markets, regulation could be inhibiting a very valuable addition to reaching useful accurate results in these markets. The task of managing important corporate information has traditionally been kept to the very elite few, but technologies enabled by the internet have begun spreading the idea that this process actually stifles innovation. It is quite evident in this case that regulation about insider trading conflicts with any attempts to harness collective intelligence, even in a way beneficial for both the business and investors.
This article explores another facet of prediction market communities that I believe has been kept largely under wraps. It is unclear how much insider trading goes on in prediction markets, though it is plain to see according to this article that it probably shouldn't be discouraged. Especially on play-money markets where the only benefit is the social value of predicting the future, these annoymous markets should be an opportunity for those with any bit of information to come forward with if they choose for the benefit of the whole.
tagged prediction_markets by geoa ...on 09-APR-09
Collective Intelligence is described here as a tool to be harnessed, since crowds can also have negative or difficult characteristics in most other contexts and are generally not preferred to deal with "directly". The formed collective can almost be thought of as a almost a distinct individual or expert according to Watkins. Prediction markets here are examined as "sophistocated aggregation tools" bringing together communities of self-selected individuals who already perhaps have an emotional investment in the issues. Watkins is also concerned with issues of trust and how to cultivate public trust in collective intelligence as a reliable source of information.
Watkins touches on the characteristics of particular communities and the individuals who are drawn to prediction markets, an area that I plan on focusing on more intesively through the study of forums and demographic data on each of the particular sites. In additon, the notion of trusting this collective prediction over that of the experts interacts interestingly with Surowiecki's theory that they experts often partake in the predicting.