This morning, on the web site of Science magazine, the news and research journal of the American Association for the Advancement of Science, the title and summary of an article came up that was so intriguing that I had to quickly log in to my computer at work, get behind the pay wall, and read to find out the news. I mean, who would not want to know the details of how "Alien Planets Hit the Commodities Market"?
Having been behind the pay wall, I am here to inform you that it is a perfectly pleasant article about the continued discovery of planets around other stars. But the commodities part just came from a clever headline writer.
I was really hoping that the article was going to be about someone setting up a commodities market where you could buy shares in the date of when we first make alien contact, much like how in "election stock markets" you can buy shares in your prediction for who is going to win presidential elections. It has been shown repeatedly that these election stock markets are excellent predictors of who will win the race.
Markets are quite amazing things.
I once heard a talk by an economist about a computer manufacturer trying to predict next month's price of computers and printers. Several people in the company were supposed to be experts at these predictions, but they rarely got the right answer. The experiment that the economist ran involved letting everyone at the company who had any sort of knowledge about any part of the process participate in a predictive market, where they could buy "shares" in a certain price point, or essentially bet on what the price next month was going to be. If they were wrong, all of the shares that they bought were worthless, but if they were right they could win big.
This was simple betting, but with a twist. The market price of the "shares" somehow reflected all of individual thoughts and hopes and speculations of what the price would be. No one thought that a computer was going to cost twenty dollars, so you could buy shares of "twenty dollars" for next to nothing.
Of course, they were pretty much guaranteed to be worth absolutely nothing, which is less than next to nothing, so you would lose money. As you got closer to the price that most people thought the computers were going to be next month the cost of the shares rose.
All of this experimentation could be considered an interesting exercise except for one astounding point: the economists found that the market was better at forecasting the future price than the "experts" were. Somehow all of the individuals were able to exchange and synthesize information simply by buying and selling shares of prices and all of this information exchange led to better predictions than anyone else was able to make.
As I sat and listened to this that evening I was shocked and astounded and excited. Scientists had always thought they had a monopoly on the best way to predict things ("the scientific method") and yet here was a totally non-scientific method that seemed to lead to truth in a pretty clear way. It was a strange truth: not one proved with postulates and experiments, but one simply deemed the most likely.
Before getting too carried away with these ideas, though, I also learned at that lecture that markets aren't perfect predictors and that the economists could run similar experiments where, with a few simple tweaks, they could make market bubbles and other odd effects. This fact would come as no surprise to anyone who has been alive for any of the past few years.
Thinking about markets for alien life led me to thinking, in general, about science and markets. OK, so perhaps this market approach couldn't lead to truth in quite the way that the scientific method could, but maybe there was still a place for it. What about scientific markets for things that can't quite be proven beyond sufficient doubt but that most scientists would be willing to bet a lot on.
The first thing that comes to mind is climate change. To most earth scientists, the only arguments about climate change are precisely how strong an affect it will be in different places. But somehow, because of the complexities of the questions, the public frequently sees the disagreement over the uncertainties rather than the fundamental agreements. Clearly, this was a place where a market could work. What about betting on the magnitude of climate change? Buying shares of the average temperature rise by 2050? You can argue all you want that the average temperature in 2050 will be the same as now. And then I can collect your money. (Unless I am wrong, in which case you can collect mine. Just do me a favor and show your certainty by betting A LOT of money.)
While this is all fun speculation, I fear that people would be confused by scientists buying shares in a future temperature market (anyone else remember the quickly canceled DARPA experiment to have people buy shares in predicting terrorist actions?). But what about just using the ideas amongst scientists? If I could get all of the astronomers around to buy into a market on whether or not planets with earthlike climates would ever been found around other stars, for example, I would have an effective way of collecting all of the disparate information that everyone had and coming up with the best prediction based on all of the data.
I have a better idea, though, I think. Scientists could engage in what amounts to insider trading in markets! If I really believe, for example, that the climate is warming, and that, for the most part, the rest of the world is not dealing rationally with that fact, I should buy land somewhere in central Canada where it is right now too cold for most people and then I should reap the incredible returns when the land prices skyrocket because people can no longer live in Los Angeles anymore (as crazy as this sounds, I know one scientists who independently came to the same conclusion and bought himself some [currently] chilly property in Minnesota).
I will admit that every once in a while I look at shorelines and ponder which properties are going to be future ocean view properties. A market does exist for climate change speculation, only it is a bit more indirect than simply betting on temperatures.
As a mere professor, I don't have the financial means to follow up on my early morning speculations about speculation. I leave that to you. If you are thoroughly convinced that the sea level is going to stay the same, you might consider getting some property now on the Tuvalu Islands. If you believe that the Northwest Passage is going to be continuously navigable from now on out, you might consider investing in much needed port infrastructure. No need to argue. Just place your bets, take your chances, and wait for the money to roll in.