French reinsurance giant SCOR’s corporate foundation is backing an initiative led by Lancaster University Management School (LUMS) to use prediction markets to combine diverse forecasts of future climate into unified predictions, potentially providing a new mechanism for funding climate research.
A collaboration between researchers at LUMS and the University of Exeter’s Land, Environment, Economics and Policy Institute (LEEP), the Climate Risk and Uncertainty Collective Intelligence Laboratory (CRUCIAL) uses prediction markets, with experts from academia and the private sector, to produce collective forecasts of climate-related risks.
This approach allows users to avoid relying on a single forecaster, as CRUCIAL runs “prediction markets” where climate experts effectively bet on possible future climate outcomes.
The platform then converts these bets into probabilities of the different possible outcomes, which can adjust as new information becomes available.
Participants in CRUCIAL might base their predictions on different types of models, including AI and more traditional climate models. The prediction market aggregates all these views into a single collective forecast. This approach could offer a new, performance-based method to fund climate forecasting research, providing forecasts on global temperatures, greenhouse gas concentrations, sea-level rise, hurricane activity, and other climate-related risks.
Developed by Winton Capital Management, CRUCIAL uses the AGORA prediction market platform, for climate forecasting. Winton donated AGORA to Lancaster University, where CRUCIAL is currently running a demonstration market to predict the number of hurricanes during the 2024 Atlantic hurricane season.
Dr. Kim Kaivanto, the lead of the initiative at Lancaster University Management School, commented, “Our ambition is to create a new type of scientific institution that combines the concept of incentive prizes — like the X-Prize — with the proven ability of markets to elicit and aggregate information.”
Dr. Mark Roulston, who led the development of AGORA at Winton, added, “When the primary deliverable of research is a forecast, prediction markets offer a more effective way to combine and summarise the research and a more efficient way to distribute funding.”
Philippe Trainar, Director, SCOR Foundation for Science, concluded, “The consequences of climate change are currently and will remain in the future the subject of lively controversy between experts and that beyond the scientific analyses which are progressing rapidly, the prediction markets have demonstrated their unrivalled capacity to anticipate future trends in such controversial areas, where it is necessary to quickly combine scientific results, statistical observations and learning from experience.”
The SCOR Corporate Foundation for Science was created by the French reinsurer SCOR to support research in risk analysis of interest to the reinsurance industry. The Foundation will provide funding to CRUCIAL to support its infrastructure and personnel and funds to incentivise participants in the prediction markets.
