Commonly Asked Questions about the Influenza Prediction Markets

Frequently Asked Questions about the University of Iowa Health Prediction Markets

Prediction Markets

What are prediction markets?

Prediction markets are specialized, small-scale financial markets operated to predict future events. While traditional markets exist to allocate resources, prediction markets are conducted solely for using the information "contained" in prices to make predictions about future events.

Why do prediction markets work?

Prediction markets work because they:

aggregate information from all participants, each of whom has different information about the issue in question;
provide incentives that encourage knowledgeable participants to reveal their knowledge in their trades;
provide feedback to participants-through market prices, traders learn about the beliefs of other traders and are motivated to collect more information;
allow traders to share their knowledge anonymously, thereby, encouraging traders to signal information through the market that they might not state publicly.

Prediction markets with as few as 20 or 30 traders can yield good results, but the accuracy tends to improve as the number of traders increases.

Have prediction markets been used for other purposes?

Experimental prediction markets have been used successfully to forecast future events in several settings. The first prediction markets were conducted at the Uinversity of Iowa in a continuing project known as the Iowa Electronic Market. They were created to test the ability of markets to forecast election outcomes, and they continue to be used on the IEM for that purpose and for predicting other events such as interest rate decisions by the Federal Reserve. Eli Lilly has used internal markets to predict which developmental drugs have the best chance of advancing though clinical trials. Hewlett-Packard (HP) has used experimental markets to forecast sales of its printers; these markets have outperformed standard statistical sales forecasts. Similarly, The Hollywood Stock Exchange has accurately predicted Oscar nominees and repeatedly forecasts opening-weekend returns more accurately than does the movie industry. The Foresight Exchange operates markets to predict a variety of events such as whether specific mathematical conjectures will be proven.

What is the difference between gambling and futures or prediction markets?

In futures markets investors make investments based upon their beliefs about the future, and they may profit or lose depending upon the outcomes of their investments. Unlike gambling, however, futures markets provide some "social good," the most common of which is to allow investors to "hedge risk" or to protect themselves against future price increases.

For example, agricultural futures markets have caused a net stabilization of commodity prices, which greatly benefited the industry by reducing uncertainty about future prices.

The prediction markets run by the University of Iowa provide a social good through thier uses in education and academic research and through the information they generate.

Since 1988, the Iowa Electronic Markets (IEM), run by University of Iowa's Tippie College of Business, has run markets to teach students at the University of Iowa and over 100 other colleges and universities throughout the world how markets work. Also, several peer-reviewed research articles have been written based on research employing IEM data. Vernon Smith, in his acceptance speech for winning the 2002 Nobel Prize in Economics in 2002, cited the IEM as one of the best demonstrations of how efficiently markets aggregate information about uncertain future events.

For more information about the IEM See: http://www.biz.uiowa.edu/iem/

The goal and "social good" of the Health Prediction Market is to produce forecasts of health related events to help health care workers, public health officials and hospital administrators better prepare for those events.

Seasonal Influenza Prediction Markets

Why was the seasonal influenza market started?

Currently there are no methods to accurately forecast influenza activity.
If local health officials and health care workers could predict an outbreak, even 1-2 weeks in advance, they could initiate measures to modify the severity of the outbreak.
The Centers for Disease Control and Prevention devotes significant resources to influenza surveillance, but by the time this information is published, it is 1-2 weeks old.

How can information from the influenza market be used?

An accurate forecast of influenza activity would be helpful even 1-2 weeks in advance: measures could be initiated to modify the severity of the outbreak. For example, public health officials could allocate resources to increase vaccination rates among high-risk individuals and health care workers. Prophylactic medication, such as neuroamidiase inhibitors, could be administered to persons in high-risk groups (e.g. nursing home residents and staff). In addition, if increased influenza activity could be predicted, hospital administrators could plan ahead and ensure that adequate numbers of staff are available to care for an increased number of patients admitted for influenza complications.

How does the influenza market work?

At the beginning of the influenza season, we recruit a diverse group of health care workers with information about influenza activity. Each of the traders is given an educational grant of $100 with which to trade. This grant grows or shrinks over the course of the influenza season depending upon the accuracy of the individual trader's predictions. Potential traders include physicians, nurses, pharmacists, clinical microbiologists and epidemiologists. Each of these traders has access to unique information regarding current and future influenza activity. For example, if a clinical microbiologist suddenly sees an increase in the number of respiratory cultures positive for influenza, influenza will likely increase in her community during the next few weeks. Such a trader could log-on to our website and purchase shares for "widespread influenza activity" over the next few weeks. She would also likely try to sell her shares of "little-or-no influenza activity". On the other hand, if a nurse had seen several patients with influenza in the emergency room for the last few weeks and then saw no more patients, he would be tempted to sell all his "widespread influenza activity" shares and try to buy as many "little-or-no activity" shares as he could.

Each influenza "share" or "contract" is associated with a specified level of influenza activity during a specific week and is worth $1.00 when trading ends if that turns out to be the observed level of activity. Thus, the price at which trades take place represents the consensus belief about the likelihood of that level of activity. For example, if the price of widespread activity for a given week was $0.90, the market expects influenza to be widespread with 90% probability.

Each influenza contract is based on the Centers for Disease Control's weekly color-coded system: RED=Widespread, BLUE=Regional, PURPLE=Local, GREEN=Sporadic, YELLOW=No Activity. Individual trader's predictions are judged accurate or not based upon the levels of activity reported by the CDC.

Could the influenza market be applied nationally?

Yes, our software runs over the internet so any health care worker with information about influenza and with internet access could trade. However, we would need to recruit traders from around the country. Our software is capable of handling thousands of traders. Thus, we only need to recruit and train a group of traders from diverse geographic regions and diverse health care fields. Next year we plan to start recruiting traders from around the country from existing infectious disease surveillance networks.

Who has access to data from the Influenza Market?

The information from prediction markets would be available to anyone who wanted to log-on to our web site. The probabilities for different levels of future activity would be displayed in an easy-to-interpret graphical format. This information is updated with each new trade. Thus, the data is available in real time.

Specifically, how can the influenza market be used to help prevent influenza?

Although influenza epidemics occur each year, the peak activity can differ by up to 2-3 months, making it difficult to identify the best time for vaccination campaigns. The influenza season can start early (as it did in 2003-2004) before vaccination campaigns are completed. Alternatively, activity might peak three months after employees have been vaccinated against influenza (as it did in 2004-2005). Because antibody titers can drop significantly in the months immediately following vaccination, giving the vaccine too early may also be problematic.

It takes 1-2 weeks for the vaccine to generate a protective immune response. Thus, 2-3 weeks of advance warning before an increase in influenza activity could provide enough time for medical directors in long-term care facilities to increase vaccination rates among vulnerable populations and also to increase their staff vaccination rates.

A few weeks of advance notice regarding a surge in influenza activity would also help health care providers and pharmacists to anticipate increased demand for prophylactic antiviral medications (e.g., neuraminidase inhibitors). These medications, if given prior to the development of illness are effective at preventing influenza. Also, if given within the first 24-30 hours of symptoms they ameliorate the major symptoms associated with influenza.

Finally, knowing that influenza is circulating in the community or will soon circulate can dramatically increase the ability of physicians to correctly diagnose influenza and thus treat the illness.

What are the future plans for the influenza market?

The Robert Wood Johnson Foundation awarded our project a five-year (Aug 2005-July 2010), $1.1 million dollar grant to expand and further test the seasonal influenza prediction markets. In addition to expanding into a national influenza market, the project goals include markets to assess the effectivness of the current year's influenza vaccine and to help predict which influenza strains should be included in the subsequent year's vaccine. While the seasonal influenza activity and vaccine effectiveness markets will involve health care workers with access to information about the current situation with influenza, the strain market will aggregate information from influenza experts in the fields of virology, epidemiology, and clinical microbiology.

An avian influenza market is also being conducted with funding from a separate RWJF grant for $245,000 over two years.

Can prediction markets be applied to other infectious diseases?

Prediction markets for infectious diseases also have applications beyond influenza. With a proper pool of traders in place, new prediction markets could be created almost overnight to address new emerging infectious diseases even before a specific etiologic agent has been identified. For example, information about SARS existed in the spring of 2003, and a prediction market for SARS could have quickly, accurately, and inexpensively aggregated expert opinion about this new disease. Such a prediction market would have been especially useful, given the absence of any preexisting SARS surveillance system.

Why do the traders participate?

Traders trade for three reasons:

They are interested in influenza and have information about its activity. Traders are interested in volunteering information in the same way that they are when filling out any other medical survey.
Unlike surveys, prediction markets allow participants to view what other participants think in real-time. This encourages traders to keep participating.
Surveys often provide a small financial incentive for participants to respond, but with prediction markets the amount of the incentive depends upon the accuracy of the participants' predictions. If participants do well, their account grows; if their predictions are inaccurate, their account shrinks. This performance feedback tends to spur further participation.

Do traders actually earn money based on the success of their trades?

Traders in our market actually do get a check in the form of a financial grant to use for education purposes (e.g., buy books, or to help pay for a conference). The grant is awarded at the end of the season and the size depends on how successful participants were in predicting influenza activity.

Traders are given an account worth $100 at the beginning of the markets and may earn additional amounts for continued and active participation. To that amount we add trading profits and subtract losses. While that amount is not enough to really encourage traders to trade up to several times a week for an entire influenza season, most participants reported that they truly enjoyed the process of trading itself and seeing how accurate their forecasts are compared to those of other traders.

How are the predictions translated into timing and are the predictions accurate?

For the 2004-2005 influenza season, we had traders make predictions from two week to eight weeks in advance. Every time a 2 week period closed another 2 week period opened.

Our predictions are very accurate from 2-3 weeks out, and even farther out traders are able to make predictions which would be helpful to the health care community. Because there are prices for each color contract, the traders give us the predicted probability that influenza activity is at one of the five influenza levels.

For the 2005-2006 influenza season, we are having traders make predictions from one to six weeks in advance, and every week during the influenza season is covered by a new set of contracts. Trading ends for a target week on Wednesday of that week. The following Saturday a new set of contracts for flu activity six weeks in the future is opened for trading.

Are there any currently available forecasts for influenza activity?

Currently, there are no widely available influenza forecasts. One could envision a very useful survey which would ask health care workers every week to predict how much influenza will be in the community during the next few weeks, based upon what health care workers are currently seeing. However, no such survey exists.

What active surveillance for influenza is currently being done?

Preventing influenza is a major public health priority and an important part of the effort to control the disease is surveillance. The seven components of the US influenza surveillance system include the following:

U.S. Influenza Sentinel Providers Surveillance Network (Figure A)
World Health Organization (WHO) and National Respiratory and Enteric Virus Surveillance System (NREVSS) Collaborating Laboratories (Figure B)
122 Cities Mortality Reporting System (Figure C)
New Vaccine Surveillance Network (NVSN) (Figure D)
State and Territorial Epidemiologists' Reports (Figures E and F)
Influenza-associated pediatric mortality
Emerging Infections Program (EIP)

Together, these networks are designed to provide a national overview of influenza activity.

What are the limitations of Influenza Surveillance?

Surveillance data is, inherently, a view of past activity, not a forecast of what to expect in the future. By the time most influenza surveillance data is collected and published, it is 1-2 weeks old.

The state and Territorial Epidemiologists' reports of influenza activity are the only state level information reported.

Thus, lots of data are being collected, but there are no currently used methods to aggregate this data in time to make useful predictions about future influenza activity.

Avian Influenza Market (AFM)

Why was the avian influenza market started?

The Avian Flu Market (AFM) was started as an international avian influenza barometer, providing policymakers and public health officials with important new information about the development and spread of avian flu worldwide.

How can information from the avian influenza market be used? Specifically, how can the predictions of the avian influenza market be used in public health planning and preparedness?

An avian influenza market would not replace existing influenza surveillance systems nor would it eliminate the need for improvements to the existing systems. Instead, this prediction market will serve as a supplemental tool to aggregate expert opinions based on existing surveillance information. Thus, an avian prediction market could act as an international avian influenza "barometer". The probabilities generated by the market could help policymakers and public health officials coordinate resources, facilitate new pandemic vaccine production, increase stockpiles of antiviral medications, and plan for the allocation of personnel and resources.

How does the avian influenza market work?

We recruit doctors, nurses, researchers, epidemiologists, public health and other medical workers who have some knowledge of avian influenza activity. Traders in the avian influenza market will be members of the Program for Monitoring Emerging Diseases (ProMED). Each of the traders is given an educational grant of with which to trade. This grant grows or shrinks depending upon the accuracy of the individual trader's predictions. Transactions in the Avian Influenza Prediction Market will be denominated in Avian Flu dollars (Avian$), the unit of exchange for this market. Each account will be endowed with Avian$25.00 for each set of contracts when trading is initiated. Contracts to be traded in the market are based on different aspects of avian influenza activity around the world during specific time periods outlined in each contract. Contracts will be introduced in sets of two, one for each possible event outcome. Contracts that denote the actual outcome will have a liquidation value of AVIAN$1. All other contracts will have a value of AVIAN$0. Contract outcomes will be determined by the Iowa Health Prediction Market managers based on information sources noted in the Market Prospectus.

Who can participate in the avian influenza market?

The AFM will be a closed, invitation-only market with participants limited to doctors, nurses, researchers, epidemiologists, public health officials and other workers in health-care fields who have some knowledge of the virus' development. AFM participants will be recruited through the Program for Monitoring Emerging Diseases (ProMED) -- an international internet-based reporting system designed to distribute information about outbreaks of infectious diseases rapidly and globally. ProMED is a program of the International Society for Infectious Diseases.

If you are interested in participating in the Avian Influenza Market, read the formal details of the market in the FVE Market Prospectus, then commplete an account application. Note: if you have an active account in another of the Uiversity of Iowa Health Prediction Markets, you do not need to apply for a new account. Simply send email to FluPrediction@Uiowa.edu requesting access to the Avian Influenza Market .

Influenza Vaccine Effectiveness (IVE) Market

Why was the influenza vaccine effectiveness market started?

A vaccine is available for seasonal influenza; however, the effectiveness of each season's vaccine varies.
If health officials and health care workers could accurately forecast influenza vaccine effectiveness, they could provide advance warning of a suboptimal vaccine and assist in preparedness.
The generation of a consensus estimation of vaccine performance can be monitored to detect conditions that may signal suboptimal vaccine effectiveness.

How can information from the IVE market be used?

An accurate forecast of influenza vaccine effectiveness would be helpful in providing advance warning of a suboptimal vaccine to assist in public health preparedness. For example, public health officials could allocate resources to increase prophylactic medication administration, such as neuraminidase inhibitors, in high-risk groups (e.g. nursing home residents and staff). In addition, if increased a suboptimal vaccine could be predicted, hospital administrators could plan ahead and ensure that adequate prophylactic medications are available to care for an increased number of patients admitted for influenza complications.

How does the IVE market work?

We recruit a diverse group of health care workers with information about influenza activity and the effectiveness of the influenza vaccine. Each of the traders is given 100 valueless flu dollars (VEFlu$) with which to trade. This grant grows or shrinks over the course of the influenza season depending upon the accuracy of the individual trader's predictions. Potential traders include physicians, nurses, pharmacists, clinical microbiologists and epidemiologists.

Each of these traders has access to unique information regarding the effectiveness of the influenza vaccine based on their own clinical experience. For example, if a physician suddenly sees an increase in the number of respiratory cultures positive for influenza despite vaccination in these patients, the vaccine is likely to be a mismatch, or be deemed a worse match this season than for the previous influenza season. Such a trader could log-on to our website and purchase shares for "Worse" over the influenza season. She would also likely try to sell her shares of "Better".

Each influenza "share" or "contract" is associated with three possible outcomes of influenza vaccine effectiveness in comparison to last year's vaccine. Three possible contracts will be trading in the market at all times during the 2006-2007 influenza season, one for three possible outcomes of influenza vaccine effectiveness in comparison to last year's vaccine. Traders will each be given 100 valueless flu dollars (IVE$) to buy and sell any of three contracts:

Better: the 2006-2007 vaccine is more effective than last season's vaccine (more than 94% effective)
Same: the 2006-2007 vaccine is as effective as last season's vaccine (85 - 94 % effective)
Worse: the 2006-2007 vaccine is less effective than last season's vaccine (less than 85% effective)

The contract that denotes the actual outcome (Better, Same, Worse) will have a liquidation value of IVE$1.00. All other contracts will have a value of IVE$0.00.

The contracts (Better, Same, Worse) will be determined by the results of the Naval Health Research Center (NHRC) population-based surveillance for febrile respiratory illness (FRI) at US military basic training centers.

Are there any currently available methods for forecasting influenza vaccine effectiveness?

Currently, there is not a widely-available method for forecasting the effectiveness of this season's influenza vaccine. Although, during the seasonal influenza season in the United States, the Naval Health Research Center (NHRC) conducts population-based surveillance for febrile respiratory illness (FRI) at US military basic training centers. These data are used to estimate vaccine effectiveness (VE) against laboratory-confirmed influenza infection at the end of the season.

Who can participate in the FVE market?

Health care workers throughout the United States with information about the effectiveness of the 2006-2007 seasonal influenza vaccine are invited to participate as traders in this market. They include microbiologists, epidemiologists, physicians, emergency room personnel, nurses, pharmacists, and health care administrators.

If you are interested in participating in the Influenza Vaccine Effectiveness Market, read the formal details of the market in the FVE Market Prospectus, then commplete an account application. Note: if you have an active account in another of the Uiversity of Iowa Health Prediction Markets, you do not need to apply for a new account. Simply send email to FluPrediction@Uiowa.edu requesting access to the FVE market.

Frequently Asked Questions about the University of Iowa Health Prediction Markets

Prediction Markets

Seasonal Influenza Prediction Markets

Avian Influenza Market

Influenza Vaccine Effectiveness (FVE) Market

Prediction Markets

Seasonal Influenza Prediction Markets

Avian Influenza Market (AFM)

Influenza Vaccine Effectiveness (IVE) Market