Weather Insurance Market Demonstrates The Importance Of Gambling

from the betting-on-rain dept

In addition to things like tagging and social networking, the past year or so has seen a lot of interest in markets as a tool to harness the wisdom of crowds and help businesses manage their operations. Some of the attempts seem promising, such as those involving internal markets as a way of identifying those business areas that are worth pursuing. Others, such as prediction markets don't actually involve money, aren't likely to prove very useful. A new startup is looking to use this model as a tool to help companies manage weather-related risk. Basically, companies that are weather-sensitive (e.g. retailers, amusement parks, farms) will be able to go to the site to buy weather insurance, while individual speculators can trade the contracts for profit. Weather insurance and weather contracts aren't actually anything new, but it's typically limited to large companies. It's not clear yet whether smaller companies, even the ones that are affected by the weather, will actually find it worthwhile to spend time and money hedging that particular risk. It will also be interesting to see if the company runs into any resistance from anti-gambling forces. While the service would seem to promote a useful aim, politicians might just see individuals placing bets on the amount of rainfall in a given month and conclude it's not much different from playing online poker. That should cause them to step back and realize a broader point though. The definitions we assign to things like insurance, futures trading, prediction markets, speculation and gambling are very fluid. In fact, depending on what angle you come at those things from, those can all basically mean the same thing. We can't say for sure whether any particular site or service is going to take off, but it comes back to what we recently discussed about the potential impediments to innovation from poorly thought-out laws. It's easy to see the immediate effects of regulation, when it involves banning something currently in practice. It's not so clear what effect that same law will have when it could stifle something that today is not even in existence.


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  1.  
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    misanthropic humanist, Jan 3rd, 2007 @ 11:24am

    wait till the wingnuts hear this

    Forgive me if I am wrong, but isn't the current USA position on gambling based on religious factors?

    I've seen so many "moral" arguments put forward to defend a ban on gambling.

    Of course most of us think that it's really because the US government were finding it hard to tax offshore casinos.

    But since these religious/moral arguments were so strongly pushed, how can those advocates square that with the stock market, or futures trading?

    Isn't betting on the weather the last word in blastphemy?

    (Yep, I'm "trolling" and playing Devils advocate here - don't jump on me, I'm just addressing the obvious schism).


    btw, I knew a loss adjuster from Florida who made his fortune from hurricanes. In the old days it used to be a "predictable" game with a major payout period every 5 or 6 years. Most those people have gotten out of the game now, since the climate change started, because it's too risky as a business.

     

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  2.  
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    Anonymous Coward, Jan 3rd, 2007 @ 12:11pm

    Place your bets!

    Al Gore would have lost a lot of money betting that 2006 would be the worst ever year for hurricanes. Put me down for $1000 on "Global Warming is a Scam".

     

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  3.  
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    Brian, Jan 3rd, 2007 @ 1:08pm

    Wrong, Jesus plays bingo!

    Unless you count those worshipping the almighty dollar, current US gambling policy has zippy to do with religion... . What would a US-based church be without the fund-raising raffles, the fund-raising casino nights, the fund-raising bingo, etc... Isn't "speculating on the stock market" the most basic of all wagers? The Religious Right has no tolerance for Wall Street.

    As has been pointed out [over and over and over], the recent regulation that made online gambling "illegal" actually didn't. It restricted how financial institutions (not you or I) can transfer money to-and-from such establishments... Taking a risk for the chance at reward is still perfectly legal. Even online.

    Anyway, US-based gambling-providers make lots of money... F'ing truckload after truckload after truckload of money, and online gambling is a serious threat to that revenue. A real and serious threat (similar to the fate of the Theater owner after we got our big-screen TV's... Not just the mobster-types either - think of all the recent billionaire Tribal Leaders.

    Yeah I ramble, but at least I killed this last hour in the office!

    It's worse. One could argue that the fiscal security of many State economies and a large chunk of the Fed'l Gov't is funded by the truckloads of taxes generated by the domestic casinos (lottery, etc...).

    I'm willing to bet that if an easy/enforceable mechanism existed to tax (a.k.a. "regulate") the online gambling industry, the US Gov't would probably encourage the practice. Hell, I'd rather bet a portion of my Social Security fund on the Superbowl than stock market.

     

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  4.  
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    misanthropic humanist, Jan 3rd, 2007 @ 1:38pm

    well I never

    "As has been pointed out [over and over and over], the recent regulation that made online gambling "illegal" actually didn't. It restricted how financial institutions (not you or I) can transfer money to-and-from such establishments... Taking a risk for the chance at reward is still perfectly legal. Even online."

    That's interesting. It shows how much distortion there is out there, even for those that follow a lot of online news like I do. I have never heard it put like that - not disagreeing with you, just surprised thats all.

    "I'm willing to bet that if an easy/enforceable mechanism existed to tax (a.k.a. "regulate") the online gambling industry, the US Gov't would probably encourage the practice."

    We do here in the UK, we have a national lottery and TV adverts for gambling were okay up until the point that the government stopped wanting the bookies to compete with their monopoly lottery.

     

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  5.  
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    James Stevens, May 10th, 2007 @ 9:33pm

    Re: wait till the wingnuts hear this

    Religion may seem like the reason, but I'm a Christian and I don't see anything wrong with gambling or taking a chance in the stock market (essentially the same thing).

    What's the difference between guessing which stock will do well and which card will turn up? What about lotteries? Online gambling? Horse racing? Sports betting? Any risk where money is involved. It's all the same.

    The religions or some religious people have got it all backwards in that 1 form of taking a risk is wrong and another is right. I've heard Christian talk shows where they're teaching you how to invest your money well.

    Not all are like this, but so many are locked up in tradition and "it's wrong cuz someone says so." In the Bible there's nothing saying you can't take risks with your possessions or values.

    Sure, I think having a gambling addiction is a problem, but that's a completely different story.

     

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