It's been a while since I've written anything about the futures market in terrorism. Science News provides an intriguing look at some markets that seem to provide accuarte predictions in a number of different areas.
Economists have found, for instance, that orange juice futures predict the weather in Florida better than conventional weather forecasts do. And on the day the space shuttle Challenger exploded in 1986, Wall Street traders correctly guessed within minutes of first hearing the news which of the four main suppliers had provided the faulty part, whereas a blue-ribbon panel of experts took months to come to the same conclusion.
Markets, such as the New York Stock Exchange, distill the collective wisdom of millions of individuals into a single statistic, and they do so with amazing efficiency. In contrast to other information-gathering institutions, such as committees and polls, markets require participants to put hard dollars behind their opinions. What's more, markets reward the people who are right, not those who lie convincingly or are loudest or most aggressive or who have the longest string of titles after their name.
Some markets have been engineered for the express purpose of providing forecasts on matters beyond the price of commodities. The Hollywood Stock Exchange, a Web-based virtual market that makes predictions about Hollywood stars and movies, correctly guessed 35 of last year's 40 Oscar nominees in the main categories. For more than a decade, an academic project called the Iowa Electronic Markets has predicted the outcomes of presidential races better than 75 percent of the polls do. And in a recent trial, a market specially designed to predict sales of Hewlett-Packard products performed better than the company's internal sales forecasts did.
I don't think this idea is going to go away, even if betting on disasters is deemed distasteful. Markets are just too powerful a tool to be ignored.
via GeekPress