moral hazard?

Intrigued by Andrew Leigh’s brief pointers on predictions markets, I have had a look at intrade, which offers markets in a number of different areas (eg. US or Israel engaging in air strikes on Iran, John McCain winning the Republican nomination for the 2008 election … ).

This is all very interesting. But surely there is a potential moral hazard here?

The people involved in making the decision to strike on Iran have a financial incentive to exploit the information that they have at the exclusion of the rest of the market. Maybe that is not so bad … it does mean that the market is likely to end up making an accurate prediction. But, if the stakes were high enough, then surely this could affect the decision itself — the President could decide to bomb Iran for (minimal) personal profit.

Advertisements

Leave a comment

Filed under pol econ

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s