Sunday, April 13, 2008

A Market for Basic Science?

From American Scientist:

Clever financial instruments might one day be used to fund fundamental research

Those who champion public support for basic scientific research often point out that if the government didn't fund fundamental work in certain fields, nobody would (a few wealthy patrons aside). Indeed, by some definitions, the lack of commercial interest in an area of scientific study is what delineates basic from applied research. But an economic vehicle of growing popularity—prediction markets—stands to turn this notion on its head.

Although markets in which traders attempt to profit by predicting the likelihood of future events have existed in one form or another for decades, they have truly taken off in the past few years. They are commonly used, in essence, to replace opinion polls and often prove more accurate than such surveys because there are concrete costs and rewards associated with being right or wrong.

One of the pioneering prediction markets is an entity called the Foresight Exchange, where buyers and sellers trade contracts whose value depends on various propositions about the future—some of which are purely matters of scientific interest. For example, the Foresight Exchange trades contracts that will pay owners at a future date should at least one gamma-ray burst be discovered to have originated within 10 megaparsecs of Earth. The value of such contracts fluctuates with the consensus of the scientific community about whether such a discovery is likely to be made....MORE