Betting on outcomes

The current controversy over prediction markets reminds me of how the idea of Social Policy Bonds originated. If you hope for a particular outcome and put a sufficiently large bet on it, then at some point it would be in your interests to make that outcome happen. Applying that to desirable social and environmental goals, and of course restricting any goal-achieving activities to those that are legal, is the underlying principle of the bond concept. Perhaps one way forward for, say, environmental groups is collectively to bet on something verifiable, and something that a counterparty thinks unlikely, such as a less-than-consensus projection of the proportion of greenhouse gases in the atmosphere in five years. They could then strive to achieve that goal, using their own funds and the possibility of that payoff as collateral for projects that will cut greenhouse gas emissions. In principle it could work. In practice, since most of our important social and environmental goals are long term in nature, it could be helpful only if there were a secondary market for the bet. If there were, then as with Social Policy Bonds, people could trade in and out, without having to wait till the goal is achieved before they can realise a gain: they'd make a profit if the market sees quick attainment of the goal as more likely. 

Without a secondary market, prediction markets would be as limited, and for the same reason as Social Impact Bonds, which aren't tradeable. I've written about the need for tradeability here and here. Essentially, it greatly expands the time-frames of the goals we can target, and allows for research, experimentation and channeling resources into only the most promising projects. For our most challenging goals, we need these activities, and they can take years.