[lbo-talk] Varian defends terror futures

[Christian Gregory]

> One of the markets the Iowa exchange offered was in vote shares: what
> fraction of the vote went to the Democratic or Republican candidate.
> It is particularly easy to assess the outcome of such a market and to
> compare it with alternative forecasts, like public opinion polls.
>
> As it turns out, these political stock markets provided somewhat
> better forecasts than polls right before the election - and they
> provide much better (and less volatile) forecasts several months
> before the elections. Thus, markets do best exactly where the public
> opinion polls and expert opinion polls are weakest.

An election is a _planned_, regular political event. Moreover, there are a
fairly limited number of outcomes, since the choices are strictly limited.
Using markets to assess the likelihood of  unplanned political events isn't
the same thing (or even a similar thing) at all, unless you restrict the
inputs in such a way as to make it meaningless. In which case, if you turn
out to be "right," it's not a matter of efficiency, but good
guesswork--another beauty contest, another way of inventing money.  In
principle, this isn't too much of a change; insurance companies have been
doing something similar for multinational corporations for a few
decades--but what, exactly, does the government think they will learn?

Or is this another way of Wall St. policing the bad behavior of foreign
governments and civil societies?

Christian