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Joint-outcome prediction markets for climate risks
Mark S Roulston1,2, Kim Kaivanto2,3
1Economics and Policy Institute, Land, Environment, University of Exeter, Exeter, United Kingdom.
Plos One
|August 30, 2024
Summary
Prediction markets can forecast climate risks by simultaneously predicting greenhouse gas emissions and temperature. These markets aggregate expert judgment for more credible climate change policy and planning.
Area of Science:
- Climate Science
- Environmental Economics
- Computational Social Science
Background:
- Climate change prediction necessitates interdisciplinary expertise and must account for policy-driven feedback loops (circularity).
- Long-range climate forecasting faces information asymmetry, hindering user trust in provider track records.
- Existing forecasting methods struggle with aggregating diverse expert knowledge and addressing prediction circularity.
Purpose of the Study:
- To explore the use of prediction markets with joint-outcome spaces to address challenges in climate change forecasting.
- To test the viability of granular prediction markets for aggregating expert judgment on climate-related variables.
Main Methods:
- Designed prediction markets with joint-outcome spaces for simultaneous forecasting of greenhouse gas (GHG) concentrations and temperature.
- Implemented granular markets for monthly UK rainfall and temperature to test aggregation capabilities.
- Utilized expert judgments within a market structure to simulate real-world forecasting scenarios.
Main Results:
- Demonstrated that prediction markets can effectively aggregate the judgments of experts with relevant climate science and policy expertise.
- Validated the feasibility of using highly granular, joint-outcome prediction markets for complex forecasting tasks.
- Showcased the potential for these markets to overcome information asymmetry and circularity issues in climate prediction.
Conclusions:
- Prediction markets with joint-outcome spaces offer a promising mechanism for producing credible climate change forecasts.
- These markets can support evidence-based policy-making, risk assessment, and strategic planning for climate-related challenges.
- Future applications could involve longer-term markets for global climate risks and policy-relevant scenarios.
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