A Predication Market For Global Warming

Scott Armstrong is not a climatologist; he is a forecaster and one of the best. At one of his websites, Public Policy Forecasting, he (or his group) explain that forecasting is even more important in the public arena than the private arena.

The Public Policy Forecasting special interest group (publicpolicyforecasting.com) has been established to provide a platform for the rational analysis of governments' policies.

Forecasting is more important for the public sector than for the private sector because public policy involves coercion, can result in large changes, and is not guided by prices. The injunction to "first, do no harm" is therefore appropriate for public policy decision making. Scientific forecasting can help decision makers to choose the best policies.

Anthropogenic global warming has been the rage for two decades among a group of politicians, the media, and scientists. The Intergovernmental Panel on Climate Change (IPCC) was established by United Nations and World Meteorological Organization to investigate a scientific foundation for drastic change from market to political allocation of resources. Their proposed reductions in carbon dioxide emissions would be extraordinarily expensive and based on government coercion, not prices.

Kesten Green and Scott Armstrong researched ("Global Warming: Forecasts by Scientists Versus Scientific Forecasts," Energy and Environment, Vol. 18, No. 7+8, 2007 ) the peer reviewed scientific papers used by the IPCC to support calls for drastic changes in the world economy. From their abstract, Green and Armstrong concluded that the evidence for climate change is weak.

In 2007, the Intergovernmental Panel on Climate Change’s Working Group One, a panel of experts established by the World Meteorological Organization and the United Nations Environment Programme, issued its Fourth Assessment Report. The Report included predictions of dramatic increases in average world temperatures over the next 92 years and serious harm resulting from the predicted
temperature increases. Using forecasting principles as our guide we asked: Are these forecasts a good basis for developing public policy? Our answer is “no”...

The forecasts in the Report were not the outcome of scientific procedures. In effect, they were the opinions of scientists transformed by mathematics and obscured by complex writing. Research on forecasting has shown that experts’ predictions are not useful in situations involving uncertainly and complexity. We have been unable to identify any scientific forecasts of global warming. Claims that the Earth will get warmer have no more credence than saying that it will get colder.

In a second paper, Green, Armstrong and a third researcher, Willie Soon, ("Validity of Climate Change Forecasting for Public Policy Decision Making," International Journal of Forecasting, forthcoming) find that a model predicting no temperature change is as accurate in short range predictions, and more accurate in long range predictions than the .03 degree Celsius per year rate of change claimed by the IPCC. The policy implication is that government should not take action to reduce carbon dioxide emissions.

To publicize his research, Armstrong challenged Al Gore to a bet that he could more accurately forecast temperature change. Al Gore demurred. A reader seeking details of the challenge can find them at "The Global Warming Challenge." Undaunted, Armstrong pressed forward and will announce on March 9, 2009 a new prediction market on the outcome of the "climate bet." Gore will not be needed. Others will take his side of the bet.

Economists have found that prediction markets are a valuable resource in forecasting outcomes, presumably because investors win or lose money based on accurate forecasts. Even markets that use "pretend" money result in good forecasts.

As a small scale experiment with a policy prediction market, Armstrong and Andreas Graefe, a German researcher established a climate bet market on hubdub.com located at this link http://tinyurl.com/gore-armstrong-bet. As I write, Armstrong leads Gore 62% to 38%.