August 22, 2005

Betting on the Price of Gas

Prediction Markets By: ams

The Wall Street Journal (registration required; bugmenot didn’t work) has an article on rising prices at the pump, titled “New Options for Saving at the Pump”. Most of the article discusses credit card enticements, membership club inducements and websites that help you find the cheapest gas in town. But they also have a paragraph on a web site that is now accepting wagers on the price of gas. The side bar (see image) suggests that “one way to cut fuel costs” is to “bet on the price of gas.”

One Web site, Pinnaclesports.com, started taking wagers earlier this month on where gas prices are headed. The site effectively allows people with long commutes to hedge their exposure. For example, if you think average gas prices in New York or Los Angeles will hit $3 by Jan. 1, you can bet $110 to win an additional $100. If you think prices won’t hit that level, you can bet $110 to win an additional $100.     [chris: that’s the same as .476 bid/.485 ask].

Among my top few prediction Market sites, the only other one that is covering gas prices is Foresight Exchange. There was a recent spike (to 90¢!), but the odds there are 22% for the national average to reach $3 by the end of the year.

Two responses to the WSJ article:

  • Is the WSJ going to make a habit of looking for market odds or a betting market whenever they can connect it to a story? This would be good built-in advertising for any provider that can move quickly to add topical claims.
  • Pinnaclesports.com doesn’t meet even pretty loose definitions of a prediction market. The odds seem to be set by a bookie rather than by offsetting bets of people with different opinions, and the odds are presented in a few different gambler-centric formats that are hard to read as probabilities.
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