Environmental Futures Emile Servan-Schreiber, Ph.D. NewsFutures.com
Can betting markets help save the world?
Consensus Machines Markets aggregate Dispersed information Various interpretations Conflicting beliefs Consensus (trading price)
Futures markets aggregate Dispersed information Various interpretations Conflicting beliefs Consensus Prediction (trading price) Forecasting Tool
Prediction Markets
What is a Prediction Market? Contract is worth $100 if it happens, or nothing if it doesn’t. trading price event probability
Are Predictions Accurate?
Market Price = Event Probability Source: SCIENCE, Feb 1, 2001 Trading prices really do correspond to observed event frequencies
More Accurate Than Polls Source: Iowa Electronic Markets Consensus of expert stakeholders vs “representative” population sample
Source: Iowa Electronic Markets More Accurate Than Polls
Why are Markets More Accurate than Polls? Polls average over individual opinions and do not engage the intellect. Markets engage people into a conversation with one another and forces them to come to a consensus (aka the trading price).
Prediction Markets Help Most When: Information/expertise is distributed among many, hard to gather, or difficult to verbalize (implicit knowledge). New information comes in continuously, requiring frequent updates of forecasts. Information is subject to various interpretations.
Environmental Futures
Increase or decrease this year? World’s Ecological Footprint Insurance industry payments due to natural disasters Amazon forest fires Environmentally induced migration Size of the Ozone Hole Global temperature Etc.
Will happen this year? Kyoto becomes effective China becomes a net importer of food Man-made famine Oil spill Etc.
Applications Environmental Security Dashboard: Continuous, real-time monitoring of consensus estimates about expected environmental outcomes. Decision Support: Decision markets can evaluate costs/benefits of intervention scenarios: What if Bush is re-elected? What if the U.S. ratifies Kyoto?
Benefits
General Public Markets Deepen awareness of the problems, solutions, and progress made (or unmade). People become stakeholders in a personal sense. Feel the public pulse in real-time;
Experts-Only Markets Cut through the fog of scientific debate with clear, quantified consensus signals. Rapidly, collectively estimate various intervention (or lack thereof) scenarii. Help indentify those who tend to predict correctly, sideline those who tend to be wrong.
Insiders Markets Hedge against various environmental outcomes. Generate valuable insiders signals.