If you want a gambling site, you need to ban insider knowledge. If you want to generate accurate predictions, you want to encourage insider knowledge. But even then, the problem you mention can occur when an insider extreme bet happens at the last minute, because although you end up with an accurate prediction it isn't very useful in the few minutes before it becomes a fact. I don't know if there is a solution.
Time-weight predictions so that they're "worth" more the further in advance they are, converging to "worthless" as they approach the due date? Perhaps there is a way of making this result emerge "organically" from the rules of the system, rather than explicitly encoding it.
Depends on your goals. If you are the platform then there is nothing to solve: you’re running an illegal gambling website and currently getting away with it. If you are an inside trader you’re also doing well.
It’s not great for the gambling addicts but helping people better themselves doesn’t seem to be a theme in federal policy at the moment
Gambling sites probably do have it in their user agreements.
Further, "insider trading" in prediction markets is probably fundamentally illegal under existing commodities fraud laws in the US (I am not a lawyer,) but there's probably nobody actively policing it, and probably no precedent in how to prosecute the cases.
