What the Prediction Markets Predict on Israel and Iran

When politicians run back and forth overseas to discuss pressing world problems, the press says that there was a “flurry of diplomatic activity.” In the case of Israel and Iran, there are many who believe that “flurry” will turn into a full-blown blizzard (with a subsequent “nuclear winter?”).

Like everything else in our wired world, the business of predicting has been taken over by “the experts” – in this case, the prediction markets, who use “The Wisdom of Crowds” to figure out the future. For example, right now at Intrade, which runs prediction markets for almost anything, from politics to wine vintages, has two Israel-related topics right now: Will Hamas recognize Israel’s right to exist (nobody seems to think so) and if Israel or the US will attack Iran.

On the latter question, the predictions are all over the place, depending on which site you look at. The folks at Hubdub seem to think so, while at Intrade, they’re not so sure. Inkling users are much more optimistic that no war will take place. And at StrategyPage, where the watchword is “many minds make quick work of uncertainty,” the many minds don’t even believe that Iran is anywhere close to obtaining nuclear weapons! (They’re pretty bullish on gold, though – I guess they didn’t read my post questioning the whole gold mania thing).

So, is there wisdom in crowds? Most definitely, say people who know the business – such as Noam Danon of Qmarkets, and Israeli company that provides prediction network technology to small and medium sized businesses. I interviewed Danon last summer for Israeli21C, and he told me about the dozens of large corporations using them to set business policy – very successfully. As he says:

“Over the past four or five years, prediction markets have become a buzzword in many large organizations; Google, HP, Nokia, Siemens, the Best Buy retail chain, and many others use them to get an idea of where they should be investing their time and money. All those companies have large departments that specialize in working out prediction markets within the organization.”

Why would prediction markets give an accurate forecast for businesses, but not for Middle East conflicts? Obviously, money is a big motivator – when you have to decide how and where to invest assets, you are going to take the whole prediction process far more seriously. As far as Israel and Iran are concerned, the speculation either way could indicate that people look at the issue academically – after all, there have been no nuclear attacks since World War II, and it seem inconceivable that anyone would want to go down in history as being behind the next one (even the Iranians, North Koreans and Pakistanis, apparently). That, it seems to me, is the verdict of the crowd – with guaranteed MAD (Mutual Assured Destruction) if Iran threatens/attacks Israel and/or vice-versa, both sides are doing a lot of “blustering” (another weather word!). Let’s hope the crowd is right on this one!