Forecasting a Possible Human-to-Human Bird Flu Outbreak Using a Commodities Futures Trading Model

Using electronic prediction markets to forecast avian flu activity

Researchers at the University of Iowa Henry B. Tippie College of Business launched an "Avian Influenza Market," a "prediction market" modeled on the principles of commodities futures trading and designed to aggregate information about the H5N1 virus useful to forecasting the timing and extent of a possible human-to-human bird flu outbreak.

The Avian Influenza Market linked public health experts worldwide via the Internet, who "traded" in futures contracts tied to specific H5N1 milestones (e.g., whether a given number of avian flu cases were confirmed by a certain deadline). Researchers say the contract price reflects the consensus among traders about the likelihood that the event will occur.

Key Results:

  • Researchers defined and conducted trading in a total of 52 contracts concerning avian flu-related events beginning in February 2007 and extending for two years until January 1, 2009.
  • Contract prices in this market were, according to project researchers, "by and large consistent with the eventual outcomes" of the events they were designed to track.

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