In his talk on March 9, 2009 at the International Climate Change Conference in New York City, Wharton Professor J. Scott Armstrong will announce the launch of a prediction market on the outcome of the „Climate Bet‟ he proposed to Mr. Gore in 2007. Prediction markets are a structured scientific approach to eliciting and summarizing peoples‟ opinions. The Climate Bet prediction market is part of a project led by Andreas Graefe, a researcher at the Karlsruhe Institute of Technology (KIT) in Germany, to examine the use of prediction markets for controversial public policy issues. Are prediction markets useful in aiding the democratic process?
Prediction Markets for Public Policy – The Controversial Termination of the PAM
Prediction markets can lead to controversy when applied to public policy. For example, the goal of the Policy Analysis Market (PAM), sponsored by the DARPA (Defense Advanced Research Projects Agency) from 2001 to 2003, was to improve intelligence analysis by predicting military and political instability around the world. Shortly before the scheduled start of PAM September 2003, two Democratic Senators held a press conference accusing the U.S. Department of Defense of planning a “terror market” for people to bet on terrorist events. The topic drew media attention; over the following two days, 128 media articles were published. Most of the articles cast PAM in an unfavorable light. PAM was rapidly terminated. Later, Robin Hanson, who had been involved in the project, conducted a statistical analysis on more than 600 media articles that mentioned PAM. He found that more informed articles favored PAM. Despite this, the political decision to dismiss PAM was made and the chance to analyze the use of prediction markets for public policy was missed.
Another Attempt – The Climate Bet Prediction Market
Mr. Gore has claimed that there are scientific forecasts that the Earth will become warmer and that this will occur rapidly. Dr. Armstrong, along with Dr. Kesten Green, examined this claim and found forecasts by some scientists, but no scientific forecasts. As a result, in June 2007, Dr. Armstrong offered Mr. Gore a bet of $10,000 on who could best forecast annual mean temperatures over the next ten years. The funds were to be put in a trust at the end of 2007, to be distributed to a charity ten years later.
The goal of this bet was to promote the proper use of science in formulating public policy. This involves such things as full disclosure of forecasting methods and data, and the proper testing of alternative methods. Mr. Gore declined the bet, claiming that he does not bet money. Here is how the prediction market bet is currently framed: “Now, assume that Armstrong and Gore made a gentleman‟s bet (no money) and that the ten years of the bet started on January 1, 2008. Armstrong‟s forecast was that there would be no change in global mean temperature over the next ten years. Gore did not specify a method or a forecast. Nor did searches of his book or the Internet reveal any quantitative forecasts or any methodology that he relied on. He did, however, imply that the global mean temperature would increase at a rapid rate – presumably at least as great as the IPCC‟s 1992 projection of 0.03°C-per-year. Thus, the IPCC‟s 1992 projection is used as Gore‟s forecast.” Mr. Gore has been invited to comment on this effort as the plan is to extend it to other betting sites. Dr. Armstrong has offered to distribute Mr. Gore‟s comments during his talk at the International Climate Change Conference.
In preparation for the upcoming conference, the bet has been posted on hubdub.com, a play-money market accessible at http://tinyurl.com/gore-armstrong-bet. Anyone can participate. For further information, contact Andreas Graefe, who is currently a visiting scholar at the Wharton School.
700 Jon M. Huntsman Hall 3730 Walnut Street University of Pennsylvania Philadelphia , PA 19104
February 23, 2009
Published on theclimatebet.com