Climate prediction markets could be the next step for the financial sector

A new proposal from Winton Investments aims at creating an arena for market players to bet on the future of environmental variables like carbon dioxide levels

 
Gambling on the destruction of the planet might seem crass, but Winton is at pains to make clear that its motives are research and debate focused 
Author: Kim Darrah
September 12, 2017

Investment management firm Winton Investments has set out its vision to create a market for climate prediction that will enable players to bet on the future of environmental variables like carbon dioxide levels. The project is being launched with the support of researchers from the London School of Economics and Political Science (LSE). Perhaps conscious of its dystopian overtones, Winton Investments asserted that the primary purpose of the market would be to reveal information to inform the climate change debate, rather than to create a betting venue for entertainment or risk transfer.

The key challenge, according to Winton, is that specific predictions about the environment are difficult to obtain due to the multidisciplinary nature of research in the area. What’s more, the scale of the possible implications of the climate debate can create biases in opinion. “Are peoples’ positions driven by what they want to be true or what they believe to be true?” asked Mark Roulston, Winton’s Research Director, at a lecture proposing the idea to experts from across the field at the Royal Society in London.

Winton would act as market maker, generating the infrastructure to enable players to trade contracts based on variables like future global temperatures

The new market, according to its makers, will be able to play the valuable role of synthesising the vast and dispersed knowledge base of researchers in the field. “A scientific gambling market could aggregate and organise the wide range of opinions and potentially reveal useful information that is hidden among the hyperbole,” said a press release from Winton.

In the proposed set-up, Winton would act as market maker, generating the infrastructure to enable players to trade contracts based on variables like future global temperatures and levels of carbon dioxide in the atmosphere. Contracts could be bought and sold on the back of predictions about such variables decades into the future.

At first, the market will remain restricted to certain participants, but it will ultimately invite both industry experts and the general public to make bets on the future of the environment. The desired result is a single consensus estimate for the extent of encroaching environmental damage, which can be neatly incorporated into the debate on climate change and used to inform decisions.

“The process of climate prediction raises fundamental, fascinating research challenges and there is value in getting more people engaged in the topic and drawing information together from a range of experts,” said David Stainforth, Associate Professorial Research Fellow at LSE.