> So wouldn't we want more military service members making bets

Who is the "we" in this sentence?

Yes, insider knowledge makes the prediction market more accurate (albeit at the cost of being less "fair"). However US government doesn't want prediction markets to accurately predict the timing of their secret military operations. Hence the arrest.

I think the problem is similar to insider sports betting, which is that once someone has made a bet, they will try to influence policy decisions in order to profit from that bet.

It's not so much insider knowledge that's a problem, but insider influence. You're paying people to make bad decisions.

Although, it would be amusing to create a sports league where the athletes are expressly permitted to wager on the outcome of their games.

I think the problem is similar to insider sports betting, which is that once someone has made a bet, they will try to influence policy decisions in order to profit from that bet.

It's not so much insider knowledge that's a problem, but insider influence. You're paying people to make bad decisions.

Maybe we just don’t want prediction markets.