Environmental Futures

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Environmental Futures
Emile Servan-Schreiber, Ph.D. NewsFutures.com
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Can betting marketshelp save the world?
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Consensus Machines

• Markets aggregate
• Dispersed information
• Various interpretations
• Conflicting beliefs
• Consensus
• (trading price)

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Forecasting Tool

• Futures markets aggregate
• Dispersed information
• Various interpretations
• Conflicting beliefs
• Consensus Prediction
• (trading price)

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Prediction Markets
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What is a Prediction Market?
Contract is worth 100 if it happens, or nothing
if it doesnt. trading price ? event probability
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Are Predictions Accurate?
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Market Price Event Probability
Trading prices really do correspond to observed
event frequencies
Source SCIENCE, Feb 1, 2001
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More Accurate Than Polls
Consensus of expert stakeholders vs
representative population sample
Source Iowa Electronic Markets
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More Accurate Than Polls
Consensus of expert stakeholders vs
representative population sample
Source Iowa Electronic Markets
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Why are MarketsMore 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).

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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.

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Environmental Futures
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Increase or decrease this year?

• Worlds Ecological Footprint
• Insurance industry payments due to natural
  disasters
• Amazon forest fires
• Environmentally induced migration
• Size of the Ozone Hole
• Global temperature
• Etc.

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Will happen this year?

• Kyoto becomes effective
• China becomes a net importer of food
• Man-made famine
• Oil spill
• Etc.

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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?

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Benefits
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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

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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.

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Insiders Markets

• Hedge against various environmental outcomes.
• Generate valuable insiders signals.