In prediction markets, people use fictional money to invest in the possibility of certain events; the trading price of a proposition can be interpreted as the probability that the event will occur or that a parameter will fall within a certain interval. They are commonly used to predict the outcome of elections, movies, and sporting events.

With the recent emergence of Swine Flu, Iowa Electronic Health Markets  to predict the spread of the disease. To promote accuracy, the market is only open to people in the field of public health and healthcare, who are each given 100 “swine dollars” to trade. Traders receive $1 for every correct prediction they invest in, and lose their investment in the prediction turns out to be incorrect. Although the dollars hold no actual value, traders will hopefully be motivated by pride (leaderboards of successful traders are public) and concern for public good.

Since the course of the disease is so unknown, dependable and accurate predictions will only emerge if  a large number of traders participate in the market over an extended period of time. The creators of the market plan to recruit more traders and keep it active through the summer. The market is most reliable when traders come from a variety of fields within the healthcare profession.

Other flu prediction markets have been reasonably successful, accurately predicting the spread of the flu a month in advance about 80% of the time. Although the swine flu market is new and fairly small, the trading prices of five propositions already predict the course of the pandemic. The probability that swine flue will last past July 31 is 73%, the probability that there will by at least 1,100 cases of swine flu by May 31 is 53%, and the probability that the mortality rate in the U.S. will be between 1% and 2.5% is 48%.

http://cosmiclog.msnbc.msn.com/archive/2009/04/28/1913062.aspx