Climate change is one of the most important issues confronting humanity. Last night, invitees from across the field attended a lecture at The Royal Society on the creation of a climate prediction market in the UK. Hosted by Winton and the London School of Economics and Political Science, the event featured presentations from David Stainforth, Associate Professorial Research Fellow at LSE, and Mark Roulston, Research Director at Winton.
Over the past few decades a large amount of research has been conducted into predicting future climate. But synthesising the dispersed knowledge of thousands of researchers across multiple disciplines into a consensus view is a considerable challenge. Even though such a consensus is desired by decision makers in the public and private sectors. The organisers of last night’s event hope that the creation of a climate prediction market will provide a solution and open up new channels for discussion on climate issues.
David started the evening by highlighting the challenge of bringing together the multidisciplinary nature of climate prediction as well as its inherent sources of uncertainty. He showed evidence of ambiguity when eliciting probability distributions from experts, which in itself does not imply ignorance, but instead is useful for understanding the nature of experts’ knowledge. “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”, David concluded.
Mark built on the opening presentation by first suggesting that the potential socioeconomic consequences of the climate debate muddy the water: “Are peoples’ positions driven by what they want to be true or what they believe to be true?” A scientific gambling market could aggregate and organise the wide range of opinions and potentially reveal useful information that is hidden among the hyperbole. This is a market designed primarily to reveal dispersed information, rather than for entertainment or risk-transfer. Many have advocated the idea over the years but no one has been successful in implementing it, yet.
Mark ran through the challenges an earlier attempt at a market faced and explained why the UK, with its regulated and permissible gambling environment, would make an ideal home. He suggested that a subsidised market maker offered a solution for the twin challenges of liquidity and incentivising informed bettors to enter the market. Drilling down into how the market might operate, Mark showed that standardised bets could be used to make a huge number of different predictions, ranging in sophistication, on global temperatures and levels of atmospheric carbon dioxide decades into the future; all in a framework that could be extended to other climate variables.
Ultimately, a climate prediction market could produce a consensus estimate of scenarios, which would enhance the climate debate, and provide an objective and much-needed aggregate of the scientific community’s latest discoveries in the field.
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