To be fair, insider trading for a prediction market doesn’t really seem like a bad thing. It’s arguably the entire point (to incentivize the aggregation of all relevant information on the topic) and, unlike securities markets, there’s no equivalent of “but it’s unfair to normal traders using the markets as investments.”
The problem with prediction markets is not purely insiders but that they interface with the real world, so they encourage bettors not just to predict an outcome but to bring it into being.
You are a poorly paid Russian commander. You open an account on polymarket or Kalshi and place a bet about specific Russian troop movements, perhaps ones that would be disastrous to your war effort even, to up the leverage. When you’ve accumulated a sufficient position, you order the troops to be moved, perhaps even out of accord with orders from above. Your front collapses, your soldiers are routed, and you get rich.
These markets are dangerous. We will learn this lesson eventually.
Your example assumes there would be sufficient liquidity on that bet. The existing platforms aren’t houses or market makers that just provide functionally infinite liquidity on any bets. The “win” criteria on this example is so specific that verification becomes its own problem.
In theory a fun example, but practically it doesn’t play out the way you’re describing.
I'm aware of the assassination market concept, but there's nothing particularly unique about prediction markets. Nearly any conceivable market can be influenced by someone willing to commit violent crime. That obviously includes many normal securities markets.
Legal systems certainly should restrict markets where the incentivize is sufficiently direct (e.g. actual date of death prediction markets). There's a blurry line between what constitutes a sufficiently direct incentive, sure, but there are lots of blurry lines when it comes to legal systems.
Does happen any other aggregation than taking the average though? The whole point of this is that the average believe is not an accurate representation of reality.
Only certain limited forms of insider trading are federal crimes. The insider trading laws don't really cover this type of prediction market. But depending on the facts of the case it's possible that the trader or related parties committed some other crime such as wire fraud or improper release of classified information.
Crime is legal.
You shouldn't be surprised though, name any market, all markets are full of manipulation and insiders.