Environmental Futures Emile Servan-Schreiber, Ph.D. NewsFutures.com

Environmental Futures

Emile Servan-Schreiber, Ph.D.

NewsFutures.com

Can betting marketshelp save the world?

Consensus Machines

Markets aggregate

Dispersed informationVarious interpretations

Conflicting beliefs

Consensus(trading price)

Futures markets aggregate

Dispersed informationVarious 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

Consensus of expert stakeholders vs “representative” population sample

Source: Iowa Electronic Markets

More Accurate Than Polls

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).

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.