Flu Betting

Intrade has opened several prediction market on Swine flu in the US. A chart of the current prices appears below (it was 35 at the time of posting, indicating that the market believes there is a 35% chance that more than 10,000 cases will be confirmed in the US by mid-year.

10,000 or more cases of A/H1N1 Swine Flu to be confirmed in the US before 30 Jun 2009

Price for Number of confirmed Swine Flu cases in the United States at intrade.com

I’m not aware of any such markets that presently exist in Australia, but they would be extremely valuable for policy purposes.

While we’re on the subject, it would also be useful to have prediction markets on mid-2010 Australian unemployment. Justin Wolfers and I advocated this in 2007, but the policy need is much greater today.

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5 Responses to Flu Betting

  1. Yes, interesting stuff. I can see a problem – no doubt I’m not the first to point it out, that there could be some shonky hot money going down on unemployment futures during elections – to move the market in expectations of unemployment which could be money well spent for a slush fund in a campaign in which tens of millions of dollars are being spent on trying to win.

    (Which is not to say we shouldn’t do these things, only to say that it’s not all beer and skittles.)

  2. Andrew Leigh says:

    Correct on both points. Our paper has a couple of paras on this issue – starting p5 with “Market manipulation represents a very serious concern about the predictive ability of these markets.”

  3. Corin McCarthy says:

    I’d fire my dart at about 8.5 by July 1 2010 may be even 9.5 by July 1 2011 and then it will start coming back down. May be you could do some sort of survey … then you could open your open SP Book on the back of that research, you greater knowledge and make a killing!

  4. Corin McCarthy says:

    Ok, may be I’m a tad pessimistic today, so I’d have another bet tomorrow on say 8 by July 1 2010 … oops that is how I always lose on the melbourne cup.

  5. Bob the wombat says:

    The capacity for market manipulation is a function of liquidity, no? I have in mind such things as trading volumes, bid-ask spreads and the depth of the pockets of market participants (itself a measure of participants’ scale and their access to credit).

    Isn’t it suspected that the Icelandic banks were targets of market manipulation? Things like shorting the shares and then bidding up the CDSs: When the price of insuring against the banks’ debt rose, regular shareholders got scared and took flight, thus bringing the share price down to generate profit for the short position.

    The strategy is qualitatively sound provided that a) people trust market prices to be accurate reflections of the best information available; and b) the Evil Hedge Fund ™ is sufficiently large relative to the market for the target bank’s CDSs – either because that market is illiquid or because the EHF is enormous.

    If market manipulation can occur on that scale, what faith should we place in a prediction market where the TOTAL number of trades so far measures only in the hundreds?

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