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.