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There is a technical term for this phenomenon: an Akerlof market. Where there is a large information asymmetry in favor of the sellers, the price of items in sa

There is a technical term for this phenomenon: an Akerlof market. Where there is a large information asymmetry in favor of the sellers, the price of items in said market is driven down since buyers will not pay the sellers' requested prices due to high variances in quality. "Lemon laws" are an example of a countermeasure against an Akerlof market developing for used cars. More to your point, if insider trading were common, as you propose, then the prices of these transactions (and therefore the profit gained from them) would begin to fall as buyers would increasingly begin to distrust said transactions. Therefore. it would be in the best interest of traders with inside information to not act in the manner in which you suggest lest they significantly deflate the market from which they are looking to extract profit.

btilly 17y ago
While it is in the long run interest of every inside trader for all other inside traders to restrain themselves, it is in their very direct personal interest to extract maximum value from their knowledge. Furthermore it is difficult if not impossible to for anyone else to know that the inside trader was acting on inside information. Therefore you can't get them to cooperate for their general good. For much more on why groups fail to act in their self-interest I highly recommend The Logic of Collective Action by Mancur Olson. You can read some of the main points at http://economics.about.com/cs/macroeconomics/a/logic_of_action.htm http://economics.about.com/cs/macroeconomics/a/logic_of_acti....