A Market I’d Like to See
Economic forecasting is an inexact science at best. We’re usually unsure as to whether we’re in a recession until after the recession has passed, which certainly does not aid in policy decisions. In the spirit of free-market solutions, I’d like to propose a betting market for recessions. If such a thing already exists, I apologize– I haven’t found it.
The market could work as follows: before the first day of a quarter, shares that pay $1 if the quarter is part of a recession are auctioned off. A recession is defined as two consecutive quarters of contracting growth, to be determined after, say, two quarters have intervened. This model, in which the prevailing market price reflects the market’s best-guess of the probability of an event, is in fairly wide use on sites using it to predict important world events.
At very least, it’d serve to filter a lot of the noise in other leading indicators.