Information and Fairness

Insider trading is a classic example of the instrumental value of information and it reminds us of how markets are socially constructed (not in the sense that they are figments of the collective imagination but in the sense that they generally need the support of some social norms, rules, and laws in order to function well.)

The New York Times reported last November (in “S.E.C. Accuses Mark Cuban of Insider Trading”) that Mark Cuban, owner of the Dallas Mavericks, has been accused of selling all of his shares in a company a few hours after receiving confidential inside information suggesting the stock price would drop. At first glance it would appear that the “bottom line” is the monetary value of the information (that Cuban had but others did not), but consider how a source explained things, as quoted by the article’s writer: “It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market.” The “technical” reason for prohibiting insider trading is that markets can fail if people think others have private information, but this comment suggests that there’s a social norm at work too: it’s just not informationally fair.

Author: Dan Ryan

I'm currently an Academic Program Director at MinervaProject.com. I've been a professor at University of Toronto, University of Southern California, and Mills College teaching things like human centered design, computational thinking, modeling for policy sciences, and social theory. I'm driven by the desire to figure out how to teach twice as many twice as well twice as easily.

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