AKX - An exchange for predicting water dam levels in Australia

Abstract

The Australian population in rural and urban areas is heavily influenced and affected by such water shortages, either economically or in their life style. Managing water resources is therefore seen as a critical environmental, social and economic issue. Good forecasts can provide better understanding for the current situation (e.g. drought severity) and consequently improve decision making. Prediction markets have long proved to successfully forecast events in a wide range of applications. They seem to be a promising tool for aggregating and at the same time publishing information about water availability. With the Australian Knowledge Exchange (AKX) we launched a prediction market, in which people were invited to trade their expectations about future dam levels. Our results show that traders are able to forecast water dam levels quite accurately. Nevertheless, a simple self-developed model based on historic data beats the market forecast in half of the cases. Experts seem reluctant - due to various reasons - to join and participate in (water related) prediction markets. In summary, our first experiment results show that markets are a promising approach to forecast Natural Resource Management related figures. Further improvements are discussed which may help to increase prediction accuracy in future applications. © Springer-Verlag Berlin Heidelberg 2009.