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Arctic Sea Ice "Market"
« on: March 22, 2013, 07:43:08 PM »
So this should give a whole new spin to "Buy low, Sell High"?

I just stumbled across an interesting initiative out of the University of British Columbia here:

Their "Sauder School of Business" has been in the news recently thanks to our upcoming Provincial Government General Election for creating a 'market model' where people can 'invest' in the market and 'trade' on the prospects of the various political parties.

So while I was checking that I noticed on the bottom of the "equities" being traded.

"Minimum Arctic Sea Ice Extent Market"

They state on that page (bold added):


The arctic sea ice has been shrinking as a result of climate change. A key measure is the annual minimum artic sea ice extent, which occurs typically around mid-September each year. The authoritative source for this information is the National Snow and Ice Data Center (NSIDC) at the University of Colorado. In 2012, the minimum artic sea ice cover reached an historic low at 3.369 million square kilometers, less than half of the 1980-89 average.

The purpose of this market is to help predict the minimum artic sea ice extent, which in turn helps inform policy makers and the public, and stimulate research to improve models of arctic sea ice variation in response to climate change. By rewarding the best forecast financially, this prediction market provides a financial incentive to improve forecasting ability.

The table on the right [click the link to see it] shows the measured minimum sea ice extent for every year since 1980, expressed in million of square kilometers. The two other columns in the table indicate the percentage change relative to the last year, and relative to the 1980-1989 average minimum sea ice extent. For example, in 2012, the minimum sea ice extent of 3.369 million square kilometers was the lowest on record. It was 21.7% smaller than in 2011, and 51.6 smaller than the average 1980-1989 extent.Contracts in this Prediction Market

There are two contracts traded in the Minimum Arctic Sea Ice Extent Market: a high extent contract ("HGH") and a low extent contract ("LOW"). These two contracts mirror each other in this linear threshold prediction market. A linear threshold prediction market is characterized by an upper and lower threshold and an intermediate range. Concretely, if the minimum arctic sea ice extent exceeds the upper threshold, contract "HGH" pays $1 and contract "LOW" pays $0. If the minimum arctic sea ice extent drops below the lower threshold, contract "LOW" pays $1 and contract "HGH" pays $1. If the minimum arctic sea ice extent falls into the intermediate range between the lower (L) and upper (U) threshold, the contract payoff is determined by a linear function. In this case, if X is the actual minimum arctic sea ice extent and U>L, contract "HGH" pays $(X-L)/(U-L), and contract "LOW" pays $(U-X)/(U-L).

This could be a fun way to do predictions for the upcoming season.  Granted they are only focusing on the NSDIC values, but perhaps if they had a bunch of folks from this blog/forum participating they would extend the market to include other measurements and sources.

To "invest" you have to pay into a minimum of $25... which I have done. 

Unfortunately, there is a snag:


Because of regulatory and jurisdictional issues, participatpation in the Prediction Markets is only available to Canadian residents who are at least 19 years of age. In order to meet the residency requirement, participants must provide a Canadian mailing address where we will send cheques for divested funds. Traders must also provide a Canadian phone number where we can reach them. For educational purposes, minors may participate in this market under the supervision of a parent, legal guardian, or teacher.

But I thought it worth a mention.  It is certainly an interesting experiment.


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Re: Arctic Sea Ice "Market"
« Reply #1 on: March 28, 2013, 05:46:51 PM »
Definitely interesting, and I would qualify to participate, but I'm not much of a gambler.  I notice that they don't actually give values for the upper and lower threshold.  Do you have to sign up first to see them, or have they not given the thresholds yet?

Also, there's a minor typo:
If the minimum arctic sea ice extent drops below the lower threshold, contract "LOW" pays $1 and contract "HGH" pays $1.

From the below image, it's obvious that it should say "contract "HGH" pays $0".  Otherwise, "HGH" would be a great deal! :D

The HeisenIceBerg uncertainty principle of climate science: The less sure climate scientists are about something, the more sure climate deniers are that it means climate change isn't happening or doesn't matter.

The converse is not true.