December 13, 2005

Salon on InTrade’s Bird Flu Markets

Prediction Markets By: ams

Salon has a complimentary (but not free) article on InTrade’s Bird Flu markets, but they seem to overbill the minor points and underplay the important questions and effects. They’re interested in whether it’s immoral to bet on events that will turn out to be a tragedy for someone. “Is this market offering the chance to win blood money?”, and “[Do traders] worry about profiting from tragedies?”, but they can’t seem to get a rise out of either the people they interview or anyone on InTrade’s message boards. They quote someone on the message board who points out that moral hazard is the relevant ethical risk, and that doesn’t seem to be present for acts of nature like bird flu.

The more interesting question is whether the bird flu market can tease out latent information and make it accessible to market watchers. Salon points to markets that have been successful (and ones that have overclaimed success), and seems to assume this means we can rely on the bird flu market’s predictions. This market seems different enough from all the others that have been tried that I’m waiting for more data before relying on the results.

On the other hand, Salon’s tag line “If the price of the bird flu spikes, it’s time to prepare for the worst…” has a little to recommend it. At least if the price spikes, I’ll expect someone to investigate and tell us why.

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