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Futures Market Created To Predict Influenza Activity

The Iowa Electronic Markets (IEM) has begun an online futures market to predict influenza activity in the state of Iowa. This unique experiment is a collaboration of two professors from the Henry B. Tippie College of Business and three infectious disease physicians from the University of Iowa's Carver College of Medicine.

Their goal is to predict future influenza activity quickly, accurately, and inexpensively by aggregating the expert opinion of health care professionals using a futures market. Experimental markets have been used by the IEM to predict outcomes ranging from election results to movie box office receipts. Since 1988 the IEM has developed an impressive prediction record, substantially superior to alternative mechanisms such as opinion polls.

This pilot project is the first known attempt to use a market to forecast infectious disease activity.

"Existing surveillance is always a week or two behind actual influenza activity and includes relatively few clinics and laboratories. If we knew even a week in advance that influenza activity was likely to increase, it would help us respond more quickly -- and this market could provide almost instant reactions from the 'frontline' healthcare workers who trade," said Philip Polgreen, a fellow associate in infectious diseases in the Carver College of Medicine.

Polgreen is collaborating with Loreen Herwaldt, professor of internal medicine, and Daniel Diekema, an associate professor of internal medicine on the project. IEM co-directors Forrest Nelson and George Neumann, both economics professors in the Tippie College of Business, set up the prediction market.

The professors have recruited about 40 traders from a variety of health-related areas, including doctors, nurses and lab workers, Polgreen said. Each trader brings a slightly different mix of information and opinions regarding future influenza activity. The probability of influenza spreading or declining will be reflected in the price of the influenza contracts, timed to mature two weeks apart, spaced throughout the influenza season.

"Despite the seasonal predictability of influenza, considerable variability exists in the extent of disease activity as well as the timing and geographical location of influenza outbreaks. Thus, more accurate forecasting of influenza activity even one or two weeks in advance would assist efforts to modify the severity of influenza at both individual and community levels," said Herwaldt.

"Markets have proven to be useful devices for aggregating dispersed and even disparate information. We are hoping, and expecting, that these flu prediction markets will be similarly effective at providing advance warnings of the timing and extent of outbreaks of this very serious disease," said Nelson.

"Let's say a nurse in Northeast Iowa notices an increase in the number of grade school absences, or a medical technologist in a Mason City lab notices a sudden increase in the number of samples submitted for testing. If they are participants in this project, they might respond by buying more 'regional' and 'widespread' contracts, and bidding up their prices in the process," Nelson explained.

The IEM is an online futures market that operates with the permission of the Commodity Futures Trading Commission. But unlike other markets operated by the IEM, influenza traders will not be able to invest their own money, explained Neumann. Instead, the traders in the influenza market will be granted $100 worth of "flu dollars" not based in any real currency.

Traders are still being recruited for the market, which will run through the end of the flu season. If this pilot project is successful, the UI professors will seek funding to expand the market to the national and international levels and to other infectious diseases.


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