Tentative findings from a small sample: prediction markets back superiority of scientific forecasting for climate change

In June 2007, Scott Armstrong offered Al Gore a bet of $10,000 on who could best predict global mean temperature over the next ten years. The general objective of the challenge was to promote the proper use of science in formulating public policy. This involves such things as full disclosure of forecasting methods and data, and the proper testing of alternative methods. A specific objective was to develop useful methods to forecast global temperatures as a high profile and important public policy problem. In particular, it was hoped that other competitors would join to show the value of their forecasting methods.

Al Gore declined the bet, citing the reason that he does not bet money. The full story can be reviewed at theclimatebet.com. However, the question about who would win this bet is important as it can promote the proper use of science for informing public policy decisions. So what would have happened assuming that Gore and Armstrong made a gentlemen's wager (with no money)? Who could be expected to win - and how could one predict the winner?

The terms of the Climate Bet

Gore did not specify a method or a forecast. Nor did searches of his book or on the Internet reveal any quantitative forecasts or the methodology he relies on. He did, however, present his arguments in his book and movie (An Inconvenient Truth). He claims that the global mean temperature would increase at a rapid rate - presumably at least as great as the IPCC’s 1992 projection of 0.03°C-per-year; thus, the IPCC’s 1992 projection is to be taken as Gore’s forecast. The IPCC forecasts are based on computer model simulations.

Armstrong’s forecast was that there would be no change in global mean temperature over the next ten years. Armstrong made this forecast in light of prior empirical evidence that this no-changes benchmark provides accurate forecasts for complex situations when uncertainty is high and when there is no clear long-term trend. In addition, an audit of the IPCC forecast showed that it violated basic scientific principles (Green & Armstrong 2007). The winner will be the forecast with the lowest absolute error.

Using prediction markets to forecast the winner

While the evidence available to date ascribes high forecasting performance to prediction markets, all studies refer to rather simple problems that require only aggregation of information or facts. Little is known about prediction markets’ performance on more complicated tasks that also involve people’s values, attitudes, emotions, expectations, fears, commitments, etc. To study the potential of prediction markets for such problems, two prediction markets have been lauched to predict the winner of the Climate Bet.

The Intrade market aims at predicting the winner of the Climate Bet after the first three years, starting from January 1, 2008. The graph below shows the chances of Scott Armstrong to win the first three years as predicted by the intrade community. For a description of the market and access to trading click here.

At Hubdub.com, a play-monet market has been launched to predict the winner of the full ten year period of the Climate Bet.

Who would win the "Climate Bet" – Al Gore or Wharton Professor Scott Armstrong?

In his talk at the ISF 2009, Scott Armstrong will discuss methods of forecasting global temperatures, including the results from both prediction markets.