Betting and Belief: Prediction Markets and Attribution of Climate Change

TL;DR

This paper introduces a simulation model of prediction markets for climate change, showing that such markets can help align public beliefs with scientific consensus by influencing traders' perceptions of climate causes.

Contribution

It presents a novel computational test-bed for climate prediction markets, analyzing how social and market factors influence belief convergence on climate change causes.

Findings

Markets lead traders to quickly believe the true climate model.

Market participation can build public consensus on climate science.

Simulation results support prediction markets as tools for science communication.

Abstract

Despite much scientific evidence, a large fraction of the American public doubts that greenhouse gases are causing global warming. We present a simulation model as a computational test-bed for climate prediction markets. Traders adapt their beliefs about future temperatures based on the profits of other traders in their social network. We simulate two alternative climate futures, in which global temperatures are primarily driven either by carbon dioxide or by solar irradiance. These represent, respectively, the scientific consensus and a hypothesis advanced by prominent skeptics. We conduct sensitivity analyses to determine how a variety of factors describing both the market and the physical climate may affect traders' beliefs about the cause of global climate change. Market participation causes most traders to converge quickly toward believing the "true" climate model, suggesting that a climate market could be useful for building public consensus.