Big Players ravage prediction markets

On Thursday, the European Securities and Markets Authority, in its biannual risk report , finally let the cat out of the bag.

The report concluded what was on the tip of many tongues.

The Authority wrote that “A growing number of incidents illustrates that prediction markets are rife with insider trading.” The idea that insiders, with advanced knowledge of events, hold the whip handle in prediction markets, runs counter to claims made by their promoters, who include President Trump and Donald Trump Jr.

And the Trumps are not alone.

The pantheon of prediction market promoters also includes Michael S.

Selig, the Chairman of the Commodity Futures Trading Commission (CFTC), the U.S. agency tasked with regulating prediction markets.

Talk about a fox in the hen house.

Never mind.

The champions of prediction markets portray them as pipelines to the truth.

Enthusiasts insist that the prices of the traded assets reveal the true probabilities of the different events in question.

That works well for things like the weather, where no one trading in the market can influence, for example, the chance that a hurricane will make landfall in Hawaii before 2027.

But we should doubt the truth-tracking prowess of prediction markets when Big Players can both bet in the prediction market and influence the events in question.

On the prediction market Polymarket, for example, you can buy an asset that pays one dollar if the Fed’s interest-rate policy will remain unchanged in September .

If members of the Fed’s FOMC, which sets interest-rate policy, go on Polymarket to trade in that asset, we cannot pretend its price is somehow revealing an objective truth about the world.