Prediction Markets on the Surge

Mark Thoma points us to a new paper by Michael Greenstone that tries to evaluate the effect of the surge.  The news is not good.

This paper shows how data
from world financial markets can be used to shed light on the central question
of whether the Surge has increased or diminished the prospect of today’s Iraq
surviving into the future. In particular, I examine the price of Iraqi state
bonds, which the Iraqi government is currently servicing, on world financial
markets. After the Surge, there is a sharp decline in the price of those bonds,
relative to alternative bonds. The decline signaled a 40% increase in the
market’s expectation that Iraq will default. This finding suggests that to date
the Surge is failing to pave the way toward a stable Iraq and may in fact be
undermining it.

It’s amazing how far we have come since 2003 when Robin Hanson’s DARPA-funded Policy Analysis Market was ridiculed and canceled.


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