Prediction markets would bring information to light on possible crises. It’s not culturally
acceptable to predict suffering, but not having this information costs lives. The Government
can create useful but controversial markets. Predictions from these markets will “break the
ice” on important issues, bringing forward discussion and any necessary government action,
A lack of information has led to poor decisions around Coronavirus. Consider the followingcases: Handwashing was prioritised over mask-wearing, quarantining incoming travellers
was deemed impossible and a too-short initial lockdown led to months of additional
confinement. Had we known this at the time, live in the UK could have carried on as normal,
as it largely did in New Zealand and Taiwan.
Some people did know this information, but there weren’t good channels to the public or
politicians. On 24th January 2020, a top forecaster with the username “traviswfisher”
reduced their forecast for the 2020 global population, citing the “wuhan coronavirus” as the
reason. This level of concern took 6 weeks to be expressed by the UK Government. How
does information like this move from unknown experts to the public?
Prediction markets funnel information from many sources into a single stream. The stock
market is a good example. If people think a stock will go up in value, they can buy it. If they
think the opposite, they sell. In this way, it transforms the actions of many actors into one
clear signal, the stock price. Had a prediction market existed, people like “traviswfisher”
could have contributed their ideas into a signal which would have pointed more quickly to the
danger around COVID-19.
What’s more, prediction markets provide an incentive to report unpopular information.
Currently, people mock bad predictions and largely ignore good ones. Markets create a
reliable incentive. You can report your information anonymously and earn money. There is a
simple challenge to anyone who claims the market is wrong – “bet on it”.
The central point is that prediction markets let us learn controversial information more
quickly. Imagine there had been a market on “deaths due to new diseases in the UK in
2020”, which in January jumped to 100,000. Many would decry this as awful, that people
would gain money from predicting death. But equally, this information could have saved
many lives if it had been taken seriously earlier.
Private companies can’t deal with this reputational blowback. Two of the largest prediction
markets in the UK are run by bookies, Smarkets and Betfair. They will predict “safe” topics
like elections and national reopening, but they don’t want to risk the bad publicity of
predicting diseases, poverty or unemployment.
The Government can lead the way by setting up Channel-4-style, publicly-owned prediction
market, which predicts a broad range of useful topics. The Government regularly discusses
death and taxes, so faces much less reputational risk from doing so. This would provide
cover for for-profit companies to do the same.
A flourishing UK prediction market ecosystem would result in better lives for people, better
policy outcomes and better journalism. If there had been a market on “deaths from new
diseases in 2020”, a jump to 100,000 would have shocked the public. People would have bet
against it, but those with the information would have kept the price up. In the meantime,
articles could have been written about this. Headlines about Italy would stand side by side
with those showing markets predicting exactly the same for the UK. Every day this brought
the response forward would have been worth billions of pounds and 100s of lives.On the other hand, Governments are concerned with reputational risk too. In 2003, the US
Department of Defense suggested their prediction market might include a market around
terrorism. As a result of the backlash, the entire program was cancelled. There would need
to be clear guidelines – avoiding markets around deaths of individuals or those which would
likely incentivise crime. There is however a clear precedent for this, insider trading is illegal
but profitable, yet the stock market still exists.
Prediction markets are unusual, but COVID-19 has provided a window of opportunity for
unusual but good solutions. The public understands that new problems require new systems.
Where prediction markets might normally be too strange they can be part of a range of
changes around ensuring crises like this don’t happen again.
Additionally, the Government would in turn receive cover for policy moves legitimised by
prediction markets. Many times in the last year the UK government has waited weeks after
an initial suggestion to act, finally pushed by public opinion. This has avoided unpopular
policies, though has led to more deaths than would have happened with swifter action. Had
prediction markets created urgency sooner, the government could have acted more quickly
and saved lives.
It’s hard to predict what’s going to happen, but it’s worse when you get no benefit from doing
so. In the last year, there has been some reputational gain for those who made good
predictions, but it’s too little, too late. Prediction markets are a timely solution to this problem,
though they are too controversial for private companies to undertake alone. A best-in-class
public option would spur the private sector onwards and support the Government in
providing good policy.