However, even though Joe Schmoe cannot process all of the facts, he can have at least some confidence that the (considerably large) network of sophisticated professional investors competing with eachother have done the research, have made their plays, and as a result the intelligence has already been priced into the stock.
Unlike the case where a very small group of investors privy to truly secret information can collude to keep the secret information out of the stock price, to their eventual gain.
Which side of this do you intend to argue? Insider trading laws actually slow down the transfer of information from the insiders to the rest of the market. The situation is a prisoners' dilemma, in which the first insider to sell (or take whatever action) will be rewarded most, but all insiders benefit from delaying that (and arguably the rest of us suffer from that delay). So these laws actually help the insiders punish defectors, which keeps secret information secret.
The promise made by insider trading laws is that any Joe Schmoe can trade on the same footing as sophisticated professional investors, and that promise is a farce.
Well that promise certainly is a farce. Any insider action that the law can prevent (which let's face it is only a fraction of the possible insider actions) is going to "reduce" (not really) the insiders' edge over the sophisticated professionals more than it reduces the sophisticated professionals' edge over Mr. Schmoe. Of course, an edge is just information that hasn't yet reached all market participants.
Right. I would say that the basic reason for insider trading laws is the idea that insider trades create an incentive in the market to keep secrets secret, because you're making money off of that secret. Aside from the possibility that this has to ruin companies and the difficulty with prosecuting it as negligence, it still might make sense to support insider trading laws in the name of corporate transparency.
Unlike the case where a very small group of investors privy to truly secret information can collude to keep the secret information out of the stock price, to their eventual gain.