Ich Bet Eich, Part II: May One Wager in Prediction Markets?

Adapted from the writings of Dayan Yitzhak Grossman

April 17, 2026

Our previous article cited the case of an IDF reservist facing indictment for exploiting classified military information and risking operational security in wartime by means of a bet he placed on Polymarket. Having seen nonpublic military mobilization orders indicating that an attack had been set in motion, he bet $30,000 on the affirmative side of the question, “Will Israel launch an attack on Iran before the end of the month?” In that article, we considered whether trading in prediction markets is permitted; in this article, we consider the permissibility of insider trading in such markets.

Four years ago, we considered various halachic concepts that might apply to insider trading in traditional securities markets. We discussed mekach ta’us (a transaction in which a party was ignorant of information that would affect the transaction’s desirability), where the injured party has the right to reverse the transaction. We also discussed ona’ah (fraud or failure to disclose pertinent information), which is prohibited ab initio even where the transaction is not a mekach ta’us so there would be no remedy after the fact.[1] In a second article we discussed improper self-dealing and the self-serving misappropriation of confidential information.[2] Our analysis in those articles largely applies to insider trading in prediction markets as well; in this article, we will elaborate on some of the points made there.

Ona’ah and mekach ta’us

Where ona’ah and mekach ta’us are applicable, they would clearly apply to any trade made on the basis of nonpublic information. It would not matter whether the trader obtained the information through his position as an insider or not, nor would it matter whether he had any relationship with the company whose shares he traded.

R’ Aaron Levine seems to maintain that trading based on legitimately obtained nonpublic information is generally acceptable:

Beginning in 1957, Texas Gulf Sulphur (TGS) conducted exploratory activities on its property located on the Canadian Shield in eastern Canada. After aerial geophysical surveys discovered numerous anomalies, i.e., unusual variations in the conductivity of rocks, it was decided that it would be very promising to conduct a diamond-core drilling operation for further evaluation. Analysis of the core of the initial hole indicated a remarkable mineral ore strike. The discovery convinced TGS that it was desirable to acquire the mineral rights of the surrounding property owners. To facilitate these acquisitions, the president of TGS instructed the exploration group to keep the results of the drilling information confidential and undisclosed even to the other officers, directors, and employees of TGS…

The government found nothing objectionable in the secrecy TGS employed in acquiring mineral rights to the surrounding properties. This was apparently common practice in the mining industry…

The most salient feature of the transaction described in the preceding section is that TGS entered into the negotiations with superior knowledge. Does TGS’s informational advantage make the transaction at hand inherently unfair? No. Recall that the disclosure obligation is geared to the reasonable expectations of one’s opposite number. Consider that in the case at hand the relationship between the parties involved is decidedly adversarial. By bidding, say, $7,500 for the property, TGS is communicating to the landowner that the property is worth more than $7,500 to the company. Because the transaction is by nature adversarial, the onus is on the landowner to conduct geological tests to determine whether TGS’s bid is fair. If the landowner is willing to accept the bid without making an investment to determine the mineralization of the property, he is at his own risk. To insist that TGS surrender the results of its geological tests at the negotiation session is to make the landowner into a TGS partner instead of a seller of land to the company.

Before the negotiation, TGS took action to conceal any trace of its geological test. It did so by moving its drill rig away from the original core site and concealing the location by filling the hole with saplings. The company went on to drill a second hole off the anomaly to produce a barren core. TGS’s evasive actions should not be viewed as a geneivas da’as (creating a false impression) violation against the landowner. Consider that the superior information TGS comes into the negotiation with is an advantage the company itself created by means of its investment. The company should therefore be within its right to protect its investment from free-riding…^[3]

I do not understand Rav Levine’s argument that geneivas da’as does not apply because the relationship between the parties is “decidedly adversarial.” Why is this relationship more adversarial than that in any other sale? By this logic, since any buyer who offers a particular price for an item is indicating that the item is worth more than that price to him, geneivas da’as should never apply to a sale!

Rav Levine proceeds to consider the applicability of “the principle of umdena (inferential fact determination)” to his case. His analysis covers similar ground to that addressed in our recent pair of articles, “Lodging Complaint: Can a Surprised Hotelier Cancel a Deal?”^[4] But contrary to our more nuanced approach, Rav Levine asserts unequivocally that “umdena cannot work to vitiate the TGS mineral rights contracts.”

(On the basic question of whether the seller of a property who was unaware that it contained valuable mineral deposits would have a claim against the buyer for their value even where the buyer was equally unaware of their presence and wasn’t concealing them, see our article “What’s Mine Is Mine: Does a Sale Include the Unknown?”^[5])

Improper self-dealing: the classical theory of insider trading

In Chiarella v. United States, the U.S. Supreme Court enshrined in law the “classical theory of insider trading”:

Petitioner Vincent Chiarella worked in the composing room of Pandick Press, a financial printer. An acquiring corporation hired Pandick to produce announcements of corporate takeover bids. Although the identities of the acquiring and target corporations were concealed, Chiarella was able to deduce the names of the target companies. Without disclosing his knowledge, Chiarella purchased stock in the target companies and sold the shares immediately after the takeover bids were made public. Chiarella realized slightly more than $30,000 in profits from his trading activities…

[The Court concluded that] a duty to disclose information arises if there is a relationship of trust and confidence between parties to the transaction. Chiarella had no such duty. He was not a corporate insider in the acquiring corporation and he did not receive confidential information from the target company. He also had no fiduciary relationship with the shareholders of the target company: he was not their agent; they placed no trust or confidence in him; indeed, they had no prior dealings with him. A duty to disclose under Section 10(b) does not arise from the mere possession of nonpublic market information.[6]

The classical theory of insider trading by definition excludes outsiders. Moreover, it even excludes an insider of company A who, based on information he obtained as an insider, trades shares of company B—whose value is sensitive to that information—because the trader owes no fiduciary duty to company B.[7] This theory of insider trading would seemingly be generally inapplicable to trading in prediction markets, because even where someone trades in a prediction market based on inside information, the contracts traded will not typically be shares of the company in which he is an insider.

Moreover, as we noted in our general discussion of halachic perspectives on insider trading,

Halacha seems to have no black-letter law on self-dealing, and poskim who discuss cases of such do not clearly articulate the precise nature of the wrong perpetrated by the self-dealer.

We have previously noted that some contemporary poskim argue that an employee who engages in self-dealing violates the issur of geneivas da’as, because if the employer would know that this employee is doing so, he would fire him—though this idea, as plausible as it may be, has little direct precedent in earlier sources.[8]

[1]Taking Stock: Insider Trading in Halacha. Dec. 30, 2021.

[2]Insider Traitor: Does Advantaged Trading Betray Sources or Shareholders? Jan. 6, 2022.

[3]Rav Aaron Levine, Case Studies in Jewish Business Ethics, Ch. 4. Pricing Policies, p. 153.

[4]Part I, Dec. 25, 2025; Part II, Jan. 1, 2026.

[5]What’s Mine Is Mine: Does a Sale Include the Unknown? Nov. 30, 2023.

[6]Chiarella v. United States. (n.d.). Oyez. https://www.oyez.org/cases/1979/78-1202.

[7]See Ryan Fane, Agency Problems and the Misappropriation Theory of Insider Trading in SEC v. Panuwat, The University of Chicago Law Review (online essay) Section I.

[8]Kickbacks in Halacha: The Case of the Applecider. Mar. 31, 2022.