FOR IMMEDIATE RELEASE
Trusting Hurricane Information
Hurricane Futures Market opens for 2007
(L to R) Dave Kelly, Dave Letson, Dave Nolan
VIRGINIA KEY, FL (August 13, 2007) —
of Miami and the University of Iowa are pleased to announce that
the Hurricane Futures Market is now open again for the 2007
hurricane season. Now in its third year, the Hurricane Futures
Market (HFM) allows traders to buy and sell shares, based on
predictions of where a given tropical storm will land. HFM
aggregates, in real time, expert opinion on expected storm
Hurricanes are a terrible fact of life, as the 2004 and 2005
seasons graphically showed. Understanding how the hurricane
forecast and warning system may be improved is a topic of great
interest to meteorologists and the decision makers they serve.
What information do people trust and rely on when it comes to
hurricane forecasting? What additional information would benefit
risk awareness and decision making in insurance, business,
government and society? Rather than polling, HFM takes what could
be a more accurate, if less conventional approach to answering
“Each year, we are surprised by studies that show people
are not preparing for hurricanes adequately or evacuating when
they need to,” said Dr. David Letson, associate professor in
marine affairs and policy and co-principle investigator.
“While this is a rather unorthodox approach to learning
where people get their information to make these sorts of
decisions, it can be viewed as more genuine than just a survey
where people might just answer what they think you want to
The purpose of the Hurricane Futures Market is to investigate
why public expectations for hurricane landfalls at times differ
from the National Hurricane Center's forecasts. In assessing
the risks faced, citizens rely heavily on the expert opinions of
the National Hurricane Center. Increasingly, people are
turning to many other sources of forecast information on radio,
TV, and the Internet. Often, this information directly plays into
how the financial community assesses risks, such as windstorm
“With the Hurricane Futures Market, we hope to learn
which sources of hurricane information are most prevalent, how
well that information is understood, and how the hurricane
warning system might be improved,” said Dr. David Kelly,
chairman of the University of Miami's Department of
Economics and co-principle investigator.
How does it work?
- Traders are given seeded accounts worth $100 each to invest
in futures contracts whose payoff depends on where a given
hurricane makes its first landfall.
- Each time a new hurricane or tropical storm is named, the
project creates a set of securities, each of which is associated
with a pre-defined section of the U.S.
- One dollar is paid to the owner of a security with the
geographic coordinates matching where the storm makes its first
- Prices for contracts indicate traders' beliefs about
- People who buy low and sell high are rewarded for improving
the market prediction, while those who buy high and sell low are
punished for degrading the market prediction.
The Hurricane Futures Market is an experimental research tool
and not a hurricane track forecast. HFM is a prediction market,
that is, a speculative market created to capture collective
wisdom and make predictions. Markets have a history of
being very good at forecasting many events. The futures price of
oil, for example, is considered to be the best predictor for
future availability of this essential commodity and is widely
used by economic and political forecasters. Prediction markets
are rapidly becoming useful decision support tools for
corporations, such as Hewlett-Packard, Intel, Microsoft, Corning,
Eli Lilly, and Google.
“In launching the Hurricane Futures Market, we ask
whether it might teach us something about what information
meteorologists and others with a vested interest in hurricane
outcomes trust and use, and how well they understand it,”
said Dr. David Nolan, assistant professor in meteorology and
physical oceanography and co-principle investigator.
“When new information appears, it is reflected immediately
in the futures price from the actions of buyers and sellers who
are able to act first. Ultimately, the success of hurricane
warnings depends on individuals' choices, and in turn on our
understanding of how those individuals' risk perceptions
evolve over time.”
Hurricane Futures Website:
Rosenstiel School is part of the University of Miami and, since its founding in the 1940s, has grown into one of the world's premier marine and atmospheric research institutions.
Rosenstiel School of Marine & Atmospheric Science