Predicting the Information Markets

Circular Markets

As we saw in Weird Markets it can be remarkably difficult to pin down the idea of a “market”.  Markets are what economists study, economists study markets; a perfectly circular relationship.  On the other hand, markets do seem to be a fine way of deciding how to allocate scarce resources: economics is built on this singular, empirical observation.

Given this it’s not a huge jump to recognizing that markets may be a better way of making predictions about all sorts of things than relying on the kind of dubious expert forecasting we've met numerous times as in Forecasting a Financial Earthquake.  Prediction markets have suddenly become interesting because they work; which probably means they’ll shortly stop working, because they’re now interesting.  Tricky stuff, this reflexivity.

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Insider Trading – the Director’s Cut

Equivocable Insiders

Insider trading – the use of inside information about a corporation – to trade its stock to personal advantage is a major concern of regulators everywhere. Laws against this abound, and the penalties if found out are often significant: jail time awaits the unwary insider.

Of course, the ultimate insiders are company executives and there have been a lot of studies trying to figure out whether directors are any good at exploiting internal information. The evidence, such as it is, is equivocal and the reason seems to be that these privileged insiders don’t know as much as we think they do. Meanwhile insider trader laws are actually damaging the ability of markets to set prices efficiently: as ever, unintended consequences abound.

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