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: Agoraphilia

Quake Markets

By Tom W. Bell and Glen Whitman

Markets offer us a potentially useful tool for predicting earthquakes. Imagine the San Andreas fault divided into segments, each of which carries a price based on the present discounted disvalue of a future quake. That price would reflect both a quake's place in time and its place on the Richter scale. Such a market in quake claims would probably generate some useful--even lifesaving--data. If sufficiently thick, it might offer hedging, too.

I've not yet found that sort of quake market. Has any of you? If none exists, at least one should! Plenty of people and institutions would love to know more about earthquakes. Some of them would gladly support an earthquake market, I'd bet. There remain some legal risks, granted, but I think I've got a good hack for those. (Long story short: independent contractor researchers paid a base salary for making trades and winning bonuses for correct predictions.)

One nice thing about a quake market: Done right, it would generate powerfully positive externalities, benefiting even those who do not trade on the market. Imagine a map of the San Andreas fault, the price of each tradable segment illustrated by color coding or line thickness. One glance at that picture, and you would know whether it was time to relax, double-check your emergency kit, or head for the hills.

[Crossposted to Midas Oracle.]

Full post as published by Agoraphilia on February 21, 2008 (boomark / email).