Saturday, October 22, 2005

The Guardian on prediction markets

A short article in the Grauniad a couple of days ago concerning prediction markets:
Markets have now been shown to out-perform collections of "experts" in predicting monthly economic data better than the best economists, or in accurately forecasting whether WMD would be found in Iraq. Mathematicians believe that the existence of a market allows large numbers of people effectively to "pool" their collective wisdom, with each new trader able to bring a unique new insight into the mix.

How can this power be harnessed for the social good? Iowa has recently been experimenting with the trading of "flu predictions", in which traders have been asked to forecast the state of flu alert that will be in place in the state several weeks in advance. Researchers have found that the flu prediction market has been able to predict the state of flu alert with 90% accuracy a fortnight ahead of time - long enough to allow medical staff to gear up prevention and treatment regimes. Iowa economists will next turn their attention to a market that will predict the number of bird flu cases in the US. It cannot come soon enough.

1 comment:

EliRabett said...

About a year ago, when you started talking about bets, I contacted the Iowa electronic markets. They were not interested, mostly because the bet was too long term. Markets are good at short term issues with known end points. I'll see if I can dig the reply out