Tuesday, March 06, 2007

Bird flu market 

Established at the University of Iowa, whose prediction markets for political events have existed for quite some time, but has a funny twist in my view.
At the beginning of the influenza season, we recruit a diverse group of health care workers with information about influenza activity. Each of the traders is given an educational grant of $100 with which to trade. This grant grows or shrinks over the course of the influenza season depending upon the accuracy of the individual trader's predictions. Potential traders include physicians, nurses, pharmacists, clinical microbiologists and epidemiologists. Each of these traders has access to unique information regarding current and future influenza activity. For example, if a clinical microbiologist suddenly sees an increase in the number of respiratory cultures positive for influenza, influenza will likely increase in her community during the next few weeks. Such a trader could log-on to our website and purchase shares for "widespread influenza activity" over the next few weeks. She would also likely try to sell her shares of "little-or-no influenza activity". On the other hand, if a nurse had seen several patients with influenza in the emergency room for the last few weeks and then saw no more patients, he would be tempted to sell all his "widespread influenza activity" shares and try to buy as many "little-or-no activity" shares as he could.
One of the lessons I took out of James Surowiecki's The Wisdom of Crowds is that these types of markets work best when you have disparate traders with separate information. Recruiting a bunch of health care officials and researchers only means you are trading with a group of like-minded and like-informed participants. I don't think that works as well. Here are some musings from the last time this was attempted during the avian flu scare in 2005.