While Robin Hanson was busy signing Bob’-s petitions and blablabling on philosophy, Jason Ruspini answered the questions.
Jason Ruspini (”-The Brain”-) has established himself as one of the experts in the field of prediction markets. Listen up.
1-2) These markets could have insider trading restrictions and forced settlement w/ new contract set.
3-4) The CFTC/NFA could monitor a “large trader” list and have special reporting requirements for them. If trading seemed unreasonable given the objective outlook for a candidate, they could begin an investigation.
5) Don’t void or unwind the market, just settle the contracts at the price immediately before the event and then start a new set of contracts as soon as possible.
The only problem there is what happens when a price manipulation precedes an event such that the manipulated outcome locks-in the “manipulated” prices. The arrangements in 3-4) would go a long way towards addressing that scenario. Failing that, contracts could be worded in such a way to allow for freezing funds and unwinding trades in that sort of situation. Also, it would be difficult for a trader to set-off a feedback loop in a liquid binary market even if they were very large.