If you actually want to know 'why' people think so, have a look at all the discussions around insider trading in financial markets. No one is forcing you to buy stocks at gunpoint, either.
(And, yes, there are good arguments in favour of allowing insider trading in all markets, and a few against.)
It's easier to justify stock markets banning insider information because there are ignorant participants through their investment funds who we would like to protect. Why would we protect willing participants betting on arbitrary events? Even if we ban on this one too, should we in general be able to create a market that explicitly allows insider information for some arbitrary thing, insideinformationverywelcomemarket, where everyone is aware it's the main point of the market or shall we just protect these people from themselves?
> Why would we protect willing participants betting on arbitrary events?
Because some information affects the stock market. So Regulation FD already applies, for financial news.
> Even if we ban on this one too
The UK already banned this, see other comment above in this thread.
> insideinformationverywelcomemarket
You might as well as cut out the middleman, don't call it a "market" anymore, and just call it "crowdfunded-will-pay-reward-for-insider-information-website". Or, basically a crowdfunded TMZ. TMZ will pay thousands of dollars for non-financial info on celebs and then publish that news. That that point, you're just describing a slightly classier crowdfunded TMZ.
> Because some information affects the stock market. So Regulation FD already applies, for financial news.
Sure, but that has everything to do with what information you are allowed to make public, not with whether you should be allowed to bet on arbitrary other markets.
> You might as well as cut out the middleman, don't call it a "market" anymore, and just call it "crowdfunded-will-pay-reward-for-insider-information-website". [...]
The commodities markets in the US used to have no prohibition on insider trading until fairly recently. They still called it a market.
Nope, "just placing a bet" is still illegal if you’re trading on material non-public information (MNPI). Even if you don’t disclose anything, U.S. regulators can treat a prediction-market wager as a derivatives trade made with misappropriated confidential info.
Prediction-market contracts are either CFTC or SEC territory. Many "event contracts" are regulated as swaps (CFTC). If a contract references a single security/issuer, then it falls under security-based swap rules (SEC). Either way, trading them with MNPI risks liability under the applicable anti-fraud rules. (CFTC Rule 180.1 is guided by SEC 10b-5 case law on misappropriation.)
The CFTC uses the misappropriation theory: trading while breaching a duty to keep information confidential is prohibited, even if you never "tip" anyone. They’ve brought cases on this theory. CFTC enforcement and guidance explicitly cite misappropriation cases (Ruggles 2016, Motazedi 2015, EOX, etc) as "insider trading" analogs for non stock trading.
> They still called it a market.
I'm saying you can pivot your hypothetical company to a website-that-pays-for-news-like-TMZ. Last time I checked, they don't call TMZ a market.
Yes, as I said there are good arguments for allowing insider trading at least in some circumstances (and some arguments against).
Until fairly recently, there was no rule against insider trading in commodities in the US, and the market worked just fine.
My point in my earlier comment was that your question about 'why?' seemed a bit weird. You can look up the 'why?' relatively easily, even if you don't find it convincing.
(And, yes, there are good arguments in favour of allowing insider trading in all markets, and a few against.)