• More Blogs
• Observations »
• Bering in Mind »
• Cross-check »
• Extinction Countdown »
• Solar at Home »
• Expeditions »
• Guest Blog »
• Anecdotes from the Archive »

Just as the media chatter about H1N1 influenza reached a fever pitch, traders were expressing a more sober outlook.

At least that's the word from the Iowa Electronic Health Markets, which opened H1N1 futures contracts on April 28th to assess the breadth, speed and severity of the outbreak. "Overall, the conclusion to draw from the market is that the outbreak would spread quickly and broadly but not be too serious," says economist Forrest Nelson of the University of Iowa in Iowa City, who helps run the site with funding from the Robert Wood Johnson Foundation.

In these markets, participants buy and sell contracts predicting outcomes to carefully worded questions. The price at which these trades take place is thought to reflect the likelihood of these outcomes at any given point in time.  When the market closes, winning bets pay one dollar, while losers get nothing.

Within days of opening, for instance, contracts predicting high U.S. mortality (>5%) from swine flu were trading at less than 5 cents.  Meanwhile, most participants were banking on mortality levels below than 1%. Those contracts traded at 61 cents.

Early on, traders also expressed confidence that we'd have over 1,100 cases in the U.S. and in nearly every state, but they were a little more cautious when predicting the global spread of the virus.  The group has just opened two new contract sets this morning, including one asking when there will be enough vaccine to inoculate 50 million people in the U.S.

Nelson and colleague George Neumann got their start developing unconventional futures markets in 1988, setting up one to predict the outcome of the Bush-Dukakis presidential election. In 2003, they joined forces with Philip Polgreen, a University of Iowa physician, to extend their markets to the health arena.

They now have a roster of about 300 traders – including scientists, doctors, and nurses – on their avian influenza, seasonal influenza, and syphilis markets.  But while the team's political markets are certified by the Commodity Futures Trading Commision, the health markets are still an academic exercise. Participants are given $100 vouchers to trade with and they can later redeem their winnings as "educational grants."  (The recent swine flu market, however, lacks even that level of financial backing and participants were playing with what Nelson calls "funny money.")

If the health markets are eventually certified, participants will be able to stake their own money on their predictions.  That would make the service cheaper to run, and more accurate. "The old adage," Nelson says, "is to put your money where your mouth is."

Credit: rednuht via Flickr.

2 Comments

1. 1. jh443 01:57 AM 5/12/09

   Seeing as how there is a vast difference between the effect of the 1918 H1N1 flu and the 2009 H1N1 flu, there needs to be at least one more designator added. While H and N refer to physical attributes (proteins), maybe a C (contagion) and M (mortality) rating from 0-9 should be included. Each graduation of these representing a 10% increase. Granted, these last two probably wouldn't be known ahead of time, but it also wouldn't be long before these aspects could be determined.

   Reply | Report Abuse | Link to this

2. 2. TalkSwineFlu 11:07 PM 5/16/09

   Every time they talk about swine flu on the news i generally think the stock market rises, But when they stop talk about the swine flu the stock market goes to the negative side ?
   
   http://www.talkswineflu.com/

   Reply | Report Abuse | Link to this