Decision Markets and Uncertainty in Weather Forecasting

Project: Research project

Project Details


Intellectual Merit. Weather forecasts are probably the most visible and commonly used type of scientific forecast, influencing decisions small and large on a daily basis. Weather forecasts raise important questions about how uncertain forecast information should be conveyed to decision makers. As with most forecasts of changing circumstances, they exhibit both within and between-forecast uncertainty: Within-forecast uncertainty refers to the uncertainty inherent to an individual forecast. Between-forecast uncertainty refers to the uncertainty created when individual forecasts differ. With regard to within-forecast uncertainty, meteorologists can now provide more exacting information about the uncertainty in their forecast estimates than was previously available, although little of this information presently reaches end users, in large part due to doubts about how to effectively disseminate it. With regard to between-forecast uncertainty, the weather is both a promising application and a rich test bed for decision markets, a technique economists have been studying for weighting and combining diverse judgments about the future into a consensus forecast. Finding ways to convey weather information to the decision makers that use it can teach us about how to communicate uncertain events to a wide audience.

This project conducts a series of experiments aimed at three broad questions: The first question is, How do people use uncertainty information to make decisions? The investigators examine peoples ability to use probability information about weather forecasts in their decision making; study the difference the method of presentation of the information might make; and determine whether the present method of information presentation might biases decisions in any systematic way. The second question addressed is: How accurate is the information provided by decision markets? The investigators assess how the mix of trader expertise affects the accuracy of market generated information and examine how the structure of the assets traded affects the flow of information in the market. The third question is: How do (should) people use decision market information? The investigators study the effectiveness of the market in situations where decisions must be made well prior to the event.

Broader Impact. The proposed research will yield methods for improving the communication of weather information to benefit decision makers. These methods are likely to be applicable to other types of forecasts as well. The research will provide a better understanding of how decision markets work, which is an issue of potential importance to forecasting in institutions and organizations throughout society.

Effective start/end date12/15/0511/30/09


  • National Science Foundation: $503,567.00


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