Truck and Barter

With apologies to Marginal Revolution's "Markets in Everything" series.

The Associated Press is reporting that The University of Miami has taken a new approach to hurricane landing prediction. Miami is bringing MAHEM to the world in an effort to reduce the mayhem brought by a hurricane landing in a populated coastal region.

MAHEM is the Miami Hurricane Event Market, a futures trading market for hurricane landing sites. Meterologists, students, and Joe Public are all allowed to create an account and purchase up to $500 worth of securities with a payoff tied to a specific hurricane behavior.

Their concept is very interesting in that it ties a monetary incentive to the accuracy of a prediction. Hopefully this encourages more accurate forecasting. Fortunately the $500 limit prevents people from using the market to hedge their bets against actual hurricane damage.

More interesting, perhaps is the inclusion of the general public. Locals with 50 years experience who lived through a dozen hurricanes can influence the market based on their experience and intuition. I will search through my library for the reference, but I recall, I think Malcom Gladwell, referencing a study that compared the accuracy of answers from those educated in the art and the answer most commonly chosen by a group of uneducated public. I believe there was a signficant finding in the study that suggested some number of people with no education on an issue can arrive at an accurate answer.

The question becomes who will the public trust: a government agency, the National Hurricane Center or a small group of experts combined with storm chasers and gambling addicts?