© NewsFutures

[*] There are 3 “C”s actually. Those Irish bozos are not even able to spell it correctly. –> UNFCCC (United Nations Framework Convention on Climate Change). Look at the logo, below.

UPDATE: They have corrected the spelling on Saturday, December 15, 2007.

Previously: The London School of Economics chose InTrade-TradeSports over BetFair-TradeFair for floating event derivatives on global warming. + InTrade’s global warming prediction markets are more socially interesting than BetFair’s ones.

Yesterday evening, Saturday, I blogged about InTrade’s global warming prediction markets, just opened. Today, Sunday afternoon, I have just found out, thanks to a tip from Ralf Martin, that the InTrade global warming prediction markets were actually set up in collaboration with the London School of Economics’ Centre for Economic Perfomance.

What will happen to global efforts to limit greenhouse gas emissions when the current commitment period of the Kyoto protocol ends in 2012? There are hopes that the United Nations (UN) climate change conference that started on 3 December in Bali will outline a road map for a successor agreement that might be reached in late 2009.

To know what is going to happen in 2012 and beyond is not only relevant for future generations but for a wide range of investment decisions today:

• Should you buy that flat in a riverside building?
• Should companies invest in R&D on carbon capture and storage technologies?
• Should governments provide more money to wind farm development or rather improve flood defences and relocate people living close to the coast?
• Should an energy intensive company relocate its production from an industrialised country to a developing country unlikely to be covered by a pollution target?

To make these choices wisely, we need forecasts on the likely outcome and design of any post-Kyoto agreement. There is no shortage of opinions on what is going to happen. But whom should you trust? Opinions will be influenced by wishful thinking and strategic positioning alike as well as being based on different insights into parts of the puzzle. For example, living in the rich world, you might have a good sense of what the typical voter in your country thinks about pollution targets, but what about Indian voters or the Chinese communist party?

If the UNFCC [*] – the UN body in charge of the climate change negotiations – was a publicly listed company whose profits depended on the climate change reduction targets it achieves, a good way of getting an idea on what’s going to happen is to have a look at its share price rather than public statements of its bosses or shareholders. This is obviously not a possibility. But what is possible now might be even better. [...]

[*] There are 3 “C”s actually. For Christ’s sake, be careful. –> UNFCCC (United Nations Framework Convention on Climate Change). Look at the logo, below.

UPDATE: They have corrected the spelling on their blog.

1. Uninformed traders will be able to trade their opinions. Most of the US citizens have an opinion (positive or negative) on the US Congress politics and the federal legislations.
2. Informed traders (hopefully, the market makers) will be able to follow some advanced indicators (in the Washington D.C. media, for instance) pertaining to this upcoming legislation (if any).

Once again, it shows that John Delaney’s InTrade is the King of the Prediction Markets —and that BetFair-TradeFair is painfully playing catch-up.

Here’s the InTrade contract statement for the US — (USA agrees before end of 2009 to reduce CO2 emissions by 10% or more by year 2025):

A contract will settle (expire) at 100 ($10.00) if the United States agrees before the end of 2009 to reduce CO2 emissions by the amount specified in the contract by the year 2025 (relative to the 1990 emissions baseline).

A contract will settle (expire) at 0 ($0.00) if the United States DOES NOT agree before the end of 2009 to reduce CO2 emissions by the amount specified in the contract by the year 2025 (relative to the 1990 emissions baseline).

Any reduction target must be part of a United Nations Framework Convention on Climate Change (UNFCC) [*] agreement reached before the end of 2009. Any agreement to reduce CO2 emissions made outside of the UNFCC will not be considered for expiry purposes.

A reduction target does not have to be ratified for the contracts to be expired – only agreed to under the UNFCC. [*]

Expiry will be based on official and public announcements from US officials or the UNFCC Secretariat, as reported in three independent and reliable media sources.

Due to the nature of this contract please also see Contract Rule 1.7 Unforeseen Circumstances.

The Exchange reserves the right to invoke Contract Rule 1.8 (Time Protection) if deemed appropriate.

Any changes to the result after the contract has expired will not be taken into account – Exchange Rule 1.4

Please contact the exchange by emailing help@intrade.com if you have any questions regarding this contract before you place a trade.

Important:
Please contact the Exchange if you have any query or uncertainty (including how it may be settled) about this Contract, the Rule above or the Contract Rules before you trade.

There are 4 other contracts (E.U., Russia, Japan, and China+India).

[*] There are 3 “C”s actually. Those Irish bozos are not even able to spell it correctly. –> UNFCCC (United Nations Framework Convention on Climate Change). Look at the logo, below.

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UPDATE: Mike Linksvayer’s comment…

They’d be even more interesting if offered in combination with electoral outcomes and more yet if offered in combination with climate outcomes. I’m happy to see BINLADEN+MUSHARRAF contracts recently added, but volume is almost nil. Intrade (or someone new) will need better technology to be really socially interesting — be a source of many contingent probabilities. Many explicit combination contracts is just unworkable. I’m also happy to see Intrade offering several multi-year contracts, of which the climate ones are a good example. I believe the Google Lunar contract is currently the longest term one, expiring in 2012. I’m rooting for Intrade and for something better to come along, simultaneously.

UPDATE #2: I have just found out, this Sunday afternoon, thanks to a tip from Ralf Martin, that the InTrade global warming prediction markets were set up in collaboration with the London School of Economics’ Centre for Economic Perfomance.

UPDATE #3: InTrade have corrected the spelling on Saturday, December 15, 2007.

NEXT: The London School of Economics chose InTrade-TradeSports over BetFair-TradeFair for floating event derivatives on global warming.

Dynamic Chart:

Static Chart:

1. Now, half of the corn cultivated in the US is for biofuel. Abroad, we see the same trend: more and more crops end up in gas tanks. The result of that is that is that the price of food has gone up for the Earth’s poors. The Food and Drug Administration of the United Nations (FAO) has issued a report predicting some kind of riots by hungry protesters.
2. Before they can grow “oil palm trees” (is that Jatropha?), they have to burn the forests, thus releasing CO2 in the atmosphere —the complete, damn opposite of what the Earth needs right now.

The kind of bad news you’ll never hear at Caveat Bettor. [See his comment!!]

Credit: Paramount Pictures Classics

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Congrats to InTrade and NewsFutures, which predicted a victory for Al Gore, in a weak way, though.

I’m thinking of something, having in mind the LongBets experiment. Bet2Give lets traders select the charity of their choice. Good. But can’t we go further than that? Why not letting some people (like Robin Hanson and his gullible fanboys like Chris Hibbert ) create some long-term, socially valuable prediction markets, all this funded by foundations or think tanks’ money (since the money will never leave the non-for-profit world, anyway). I mean, if AEI-Brookings funded the experiment, the subsidized traders could designate AEI-Brookings as the recipient of the trading winnings, right? So, the AEI-Brookings money would indeed be used for the trading, but, in the end, it would cost AEI-Brookings only some trading fees (5 cents for each dollar).

And, I’d like to see more interactions between blogs and prediction markets. In the scenario above, there would be a strong incentive to do just that from the part of all those crazy blogging experimental economists, don’t you think? Those hyper inflated egos will fire blog posts like crazy about their ongoing experiments at Bet2Give, and that would help the marketing of those experimental prediction markets.

Bet2Give is a too good idea to bet let it in the hands of Emile Servan-Schreiber. Does EJSS have what it takes to push the Bet2Give concept further? (EJSS is much smarter than most people in the field of prediction markets, but that’s not enough. He is not crazy enough.) I suggest that Bet2Give be declared of international social utility and be run by the Organization of the United Nations.

Previous: Here’s how Bet2Give explains what a prediction market is to its prospects.

“Some men have been found to denounce and deride the modern system – what they call the capitalist system. The modern system is based on liberty, on contract, and on private property.” (1883)

Compare Sumner’s description of key elements with that from Elhanan Helpman’s recent survey The Mystery of Economic Growth, which, after 141 pages discussing the current state of academic debate on economic development, concludes

“Although it has been established that property rights institutions, the rule of law, and constraints on the executive are important for growth, the exact ways in which they effect income per capita are not well understood.”

Cautiously, hesitantly, after a hundred and twenty years during which academic opinion almost unanimously rejected “the modern system . . . based on liberty, on contract, and on private property,” we have come full circle. Had Sumner’s institutional insights been considered expert opinion throughout this period and successfully implemented in nations around the world, poverty could have been eliminated long ago; imagine what a different world we would be living in if our universities had churned out generation after generation of Sir John Cowperthwaites, of all nationalities, each of whom advocated persistently for classical liberal economic policies in government, journalism, teaching, research, etc.

Even Helpman, however, doesn’t cite the correlations between increased economic freedom (as measured by the Fraser Index) and increased rates of economic growth. Worse yet, Jeffrey Sachs, Director of the UN Millennium Project, Scientific American columnist, and probably the most influential economist on the planet, explicitly denies that economic freedom has any relationship to economic growth. His NYT best seller, The End of Poverty, points out that economic growth is not correlated with the level of economic freedom, and then moves on without further discussion. Given the evidence that increased economic freedom, rather than level of economic freedom, is the salient variable, it is mysterious why he ignores this evidence.

Meanwhile, there are investment funds that explicitly focus on economic freedom indices, and successful investors have acknowledged similar principles throughout this period.

How can we improve the dissemination of valuable perspectives on how to alleviate poverty? Clearly the academic reputation system has not been an efficient mechanism for discovering and disseminating this information.

Reputational bets, such as the famous Ehrlich-Simon bet on resource scarcity, are a start. I’ve proposed a reputational bet between Jeffrey Sachs and Bill Easterly in which we compare, twenty years from now, the twenty nations with the largest gains in economic freedom with the twenty nations that have received the most foreign aid, excluding those in both categories, and see which collection experiences the largest average increase in per capita income. Sachs would refuse such a bet, knowing that he would lose, and would thereby be forced to acknowledge that institutions generally, and those that promote economic freedom in particular, do, in fact, have important implications for economic growth. He could no longer blithely mislead global institutions, political leaders, NGOs, the scientific community, and the public.

But tying academic reputation to predictive ability more broadly would have more profound repercussions for knowledge dissemination and reputation. We need to acknowledge the utter failure of academia, outside the hard sciences, as an efficient system for knowledge generation and dissemination (What exactly are the net social returns on our 120 year investment in academic sociology?). Prediction markets, success in which is tied to academic reputation in relevant fields, would profoundly change the process through which we identified and disseminated socially-validated expertise.