Hurricane futures stir up a storm

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By DENISE KALETTE/The Associated Press

MIAMI — Three University of Miami professors are setting up a futures market that would enable people to bet on where a hurricane will strike.

The professors — two of them economists, the third a meteorologist — are hoping the collective wisdom of the marketplace will prove more accurate than weather forecasters and help homeowners decide with more certainty whether to evacuate.

The project is called the Miami Hurricane Event Market, or MAHEM.

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Miami associate professors and economists David Letson, left, and David Kelly pose Tuesday, July 19, at the University of Miami in Coral Gables, Fla. The two along with assistant professor of meteorology David Nolan (not shown) have founded an electronic hurricane futures market. (AP)

Miami associate professors and economists David Letson, left, and David Kelly pose Tuesday, July 19, at the University of Miami in Coral Gables, Fla. The two along with assistant professor of meteorology David Nolan (not shown) have founded an electronic hurricane futures market. (AP)

Under this unorthodox market-based approach, forecasters, insurers, homeowners and other members of the public will be able to invest in shares representing coastal spots where they think a storm will hit. Those who forecast most accurately will get a payout.

The point is to use markets as a way of collecting and processing information about where a dangerous storm will strike, said Professor David Kelly, an economist. "Information from many, many models is brought in to help figure out where the hurricane is going to land," he said.

Using market techniques to make predictions is not new. The University of Iowa has used futures markets to predict winners of presidential elections and forecast where the flu might strike. Futures markets also have predicted Oscar winners and box office receipts.

But the hurricane project, expected to begin next week, has drawn criticism from some top meteorologists, who say forecasts should come from a source the public has come to trust, the National Hurricane Center.

"If they think they're going to help us forecast hurricanes, I don't see how," said Max Mayfield, the center's director. He said the center uses at least a dozen sophisticated models.

"You'd think if they're serious, they would have contacted the director of the National Hurricane Center, but nobody's called me," he said. Mayfield also warned: "Forecasters are not allowed to dabble in this sort of thing."

Kelly developed the market along with fellow economist David Letson and David Nolan, a professor of meteorology, with help from the University of Iowa.

The professors said they are not making money on the venture. And traders are limited to $500 in spending per hurricane season, which runs from June through November.

The Commodity Futures Trading Commission, the federal agency that would oversee such markets, said it will not intervene as long as the organizers follow certain guidelines.