Analysis: Applying futures markets to ophthalmic research

"Computers in the future may weigh no more than 1.5 tons."

-Popular Mechanics, forecasting the relentless march of science, 1949

"640 K ought to be enough for anybody."

"We don't like their sound, and guitar music is on the way out."

-Decca Recording Co., rejecting the Beatles, 1962

"Everything that can be invented has been invented."

-Charles H. Duell, Commissioner, U.S. Office of Patents, 1899

"Louis Pasteur's theory of germs is ridiculous fiction."

-Pierre Pachet, Professor of Physiology at Toulouse, 1872

On the University of Iowa's Electronic Futures Market, Sen. Barack Obama (D-IL) was trading at $7.12 per share and Sen. Hillary Clinton (D-NY) at $2.91 in early February. In this "market," participants are betting money on who will become the Democratic nominee for president. As the price of a candidate rises or falls, market participants make or lose money.

Can this market, in which anyone can buy or sell a candidate, possibly be as reliable as polls or the expert political pundits with PhDs in political science when it comes to choosing nominees and the eventual winner of the U.S. presidency? Actually, according to the University of Iowa, this futures market has proven more accurate than 75% of political opinion polls over the past 16 years.

In the orange juice futures market, traders similarly place bets on the Florida orange crop. This market famously was highlighted in the movie "Trading Places." I remember reading that the ability of the orange juice futures market to predict the weather in Florida and, in particular, the occurrence of freezing spells that cause crop damage, exceeds the accuracy of the National Weather Service. In this case, investors repeatedly prove more prescient than the expert meteorologists on the payroll of the U.S. government.

The idea driving these futures markets is that by allowing a large number of individuals from the whole population to place monetary bets on the likelihood of a particular event, the future can be more accurately predicted than by relying on the opinions of a relatively small number of experts (e.g., political scientists, weathermen).

As evidenced by some of the famous quotations included above, it is common (if not routine) for acknowledged experts to make predictions about the future that are wildly off the mark. Experts in a field have access to the conventional wisdom in that area, whereas the entire population (or so the theory goes) has access to all available information, and in essence knows everything.

A few years ago, the Central Intelligence Agency wanted to take advantage of this concept by establishing a market on the likelihood of terrorist events. The press reports described that the market would allow persons to bet on the likelihood that certain public figures would be assassinated or that a "dirty" radioactive bomb would go off in a certain city. If the market suddenly showed an increased likelihood of such an event, security services would be alerted to try to intervene. Because the idea that people would be allowed to make money by correctly anticipating murders or other tragic events proved politically unpalatable, the market in terrorism futures never became reality.

The concept that the future can be predicted with reasonable accuracy by financial futures markets has made me wonder whether we could use this concept in biomedical science. For example, if there are competing therapies being studied for a disease, and the National Institutes of Health only has so many dollars to fund the research projects, could the futures market mechanism be used as a strategy for increasing the likelihood that the most promising therapies are being explored?

Take the example of retinitis pigmentosa. Current therapies being explored for this blinding disease include neuroprotective agents to protect the photoreceptors, gene therapy to repair genetic defects, stem cells to regenerate the depopulated outer retina, and retinal prostheses. Scientists working in each of these different areas, naturally, want to see increased funding for their research. A funding agency with $10 million to distribute might ask a panel of scientists with expertise in these areas to review grants in each area and recommend what work to support. This is the fairly established approach of making bets about the future based on the expert opinions of a group of acknowledged leaders in a field.

Alternatively, would it be possible to use a "retinitis pigmentosa futures market" to identify the promising therapies to explore? If the futures market predicted a 75% chance of success with one approach and only a 10% chance with an alternative therapy, the agency could use that information to allocate its research funding.

By Peter J. McDonnell, MD director of the Wilmer Eye Institute, the Johns Hopkins University School of Medicine, Baltimore, and chief medical editor of Ophthalmology Times.

He can be reached at 727 Maumenee Building, 600 N. Wolfe St., Baltimore, MD 21287-9278 Phone: 443/287-1511 Fax: 443/287-1514 E-mail: pmcdonn1@jhmi.edu

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