The contents of this article, preceding and subsequent to this notice, are matters of opinion provided for general informational and entertainment purposes only. They are not intended as investment advice. While derived from sources and methods believed to be reliable, the author accepts no responsibility for any losses incurred as a result of this analysis. Individuals should consult with their personal financial advisors, their parents, or their legal guardian, before investing.
Is Betting on PredictIt.org Legal?
In the United States, political betting is technically illegal — with the exception being political prediction markets run by academic researchers like PredictIt, which is backed by New Zealand’s Victoria University at Wellington. As Microsoft Research economist David Rothschild, founder of the prediction aggregator PredictWise, once explained to the Washington Post, the data taps into a rich vein of otherwise hard-to-quantify public sentiment: “We can start to figure out how much that debate gaffe really cost somebody, or, how effective was that ad?”
While covering the renewable energy beat, I’ve been particularly interested in how my special insights into the planet’s seemingly inexorable march toward an anthropogenic climate apocalypse could also make me stupid rich. So, I made sure to seek out some of the best financial planners in the country, to further evaluate this addition to my PredictIt portfolio.
“This isn’t to be mistaken with investing, you know?” Douglas Boneparth, a certified financial planner and the president of Bone Fide Wealth in New York, tells Inverse. “Honestly, we’re talking about speculation here.”
“You’re betting; you’re gambling; you’re speculating. Those are all synonyms.”
But, then again: Are we?
“In this case, we have quality information; we have very similar components to how we think about traditional investments. So, perhaps, this unique bet challenges how we define speculation.”
According to NASA’s Goddard Institute for Space Studies, reliable global temperature data extends back to 1880. A detailed study by Inverse of the four major international temperature measurement initiatives — the Japan Meteorological Agency’s (JMA) Climate Change Monitoring Report; HadCRUT4, produced by the UK Met Office Hadley Centre and the University of East Anglia’s Climatic Research Unit; the NASA Goddard Institute for Space Sciences’ GISTEMP series; and the National Oceanic and Atmospheric Administration’s MLOST records — all show a robust scientific consensus on climate change. These assessments were further corroborated by the four climate scientists interviewed for this article. By all indicators, “No” is the way to go.
“Typically, when we think about speculation, you have very limited information,” Boneparth says. “And even the information you do have isn’t that of NASA scientists, you know?”
“So the quality of information is dubious. But, in this case, we have quality information; we have very similar components to how we think about traditional investments.
“So, perhaps, this unique bet challenges how we define speculation,” he says.
Thus Far in 2018, It Has Not Been Hotter Than 2016
“On the specifics of 2018 beating out 2016 for record year,” Gavin Schmidt, the director of NASA’s Goddard Institute for Space Studies, tells Inverse, “this is unlikely, though in [global surface temperature] it is projected to be in the top five.”
Schmidt has been applying his doctorate in applied mathematics to the space agency’s climate data for nearly two decades, a job that occasionally involves plumbing Goddard’s historical database of temperature records to calculate probable outcomes and to test climate models.
By comparing 2018’s January-through-June temperatures to that same timespan within past years, Schmidt was able to gauge the predictive strength or reliability of using those months to anticipate this year’s annual global mean temperature. Factoring in those historical uncertainties, Schmidt says there is “a 90-percent likelihood of a top five ranking, a most likely ranking of four, but almost no chance of a new record.”
Schmidt’s Goddard colleague Reto Ruedy, a scientific programmer and climate analyst, agrees, describing 2018’s monthly global temperature averages as “following the current trend line so far with an uncanny precision.”
Ruedy predicts that 2018 will conclude as either the third or fourth hottest year on record — based on a regression analysis of GISTEMP’s historical temperature anomaly data, specifically, a method called locally weighted scatterplot smoothing (LOWESS). By comparing three-month ranges of past years to those same months in 2018, Ruedy found that 2018’s deviations hit the smoothing curve, well below 2016’s deviations, nearly every time.
Record Global Average Temperatures Come Down to El Niño
Along a broad band of the central and eastern central waters of the Pacific Ocean, near the equatorial region that sees the most direct and consistent impact from the sun’s rays, a turbulent heat cycle now called the El Niño Southern Oscillation (ENSO) cyclically translates all that energy into more water vapor, a nontrivial greenhouse gas. It really is not just the heat; it’s the humidity!
“There is a variance with global temperature and ENSO,” Jake Crouch, a physical scientist at NOAA NCEI, tells Inverse. “Warm ENSO phases (El Niño) tend to cause global temperatures to be warmer than trends would suggest while cold phases (La Niña) tend to cause global temperatures to be cooler than trends would suggest.”
Simply put, 2018 was a La Niña year, while 2016 was the last major El Niño year.
By Reto Ruedy’s estimates at NASA, an El Niño of the force of the past two severe instances, 2016 and 1998, increases the year’s global mean temperature by +0.12 degrees Celsius — almost an order of magnitude larger than the gradual annual increase in global temperature seen as a result of climate change (about +0.018 degrees Celsius each year for the past 50 years).
“So it takes about 6-7 years until the expected annual mean temperature equals 2016,” Ruedy says, “and about 20 years until all years will be warmer than 2016.”
While there are other persistent and trackable oscillations akin to ENSO, Deke Arndt says that none of them match El Niño.
“There are others that have nerdy names,” Arndt says, “the Arctic Oscillation, the Antarctic Oscillation, the North Atlantic Oscillation, the East Pacific-West Pacific Pattern.”
“El Niño is the one we look at the most, because it’s this big, geographically large phenomenon.”
Ultimately, this market is a question of putting your money where your mouth is, if you are someone who believes that there is a scientific consensus on climate change — although for some, including equities analyst Barry Ritholtz, even that does not alleviate the basic risk of betting $0.90, and potentially losing it, just to make a dime.
“Who’s gonna bet any real money while the odds are like this?” Ritholtz asked me.
“I don’t know if a comet’s gonna hit the — whatever.”
Accidents will happen, of course. PredictIt.org could collapse before 2018 is over. It could get hacked, its betting pools drained. According to NASA’s Jet Propulsion Laboratory, about 40 new Near Earth Objects (NEOs) are discovered on average every week; one of them (I guess, theoretically) could be headed for Earth right now, an icy comet of frozen methane (maybe) and/or other voluble greenhouse gases.
The sheer complexity of it all is what has made it so difficult for scientists to nail down detailed and accurate long-term climate models projecting the impact of increased carbon in our atmosphere — even while their near-term predictions, and the general gist of their analysis has remained hauntingly prescient.
Life is filled with vast undertakings designed to manage risk: car insurance, fat storage, actuarial tables, hard hats, stock market prices, climatology, tiny pistols hidden in boots. It’s a long list. None of them are perfect.
Ritholtz is very perceptive when he points out (and he’s done so prolifically) that political betting markets like PredictIt are, technically, not one of these undertakings. As he once wrote for Bloomberg, they’re more “like a focus group … but not a very good one.” The monetary amounts are trifling, compared to real stock markets, and the rewards are primarily emotional and ideological: people buy shares to prove themselves smarter than their political opponents, smarter than their partisan family members, coworkers and frenemies, smarter than the crowd; to confirm that they are the true rational actors in the democratic process.
Like a lot of clickbait, it’s an exercise in pure validation.
The fascinating thing about the share prices in PredictIt’s 2018 climate betting market is that they’re neither perfectly irrational nor completely rational. An irrational split might align on perfectly partisan lines — say $0.36 “No” shares vs. $0.64 “Yes” in alignment with a recent Gallup poll dividing Americans into climate change deniers and believers.
What’s happened instead is that most of climate believers in this betting market trust the science enough to know that this year won’t be the hottest on record — but a handful of irrational stragglers, eccentrics, or merely capricious people have skewed the odds. Perhaps they are part of the 64 percent of Democrats that Gallup found who consider the seriousness of global warming to be underestimated. Perhaps these bettors are the same people who buy into the sillier #Resistance grifters, like former Tory MP Louise Mensch, who pump out annoyingly exaggerated Trump-Russia conspiracy theories when the publicly available indictments and news reports ought to suffice?
Whoever they are, though, I will be making money off of them at the close of 2018 — and you can too.