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This is a transcript of AM broadcast at
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US economic forecasts based
on bookies' predictions

AM - Saturday, February
22, 2003 8:23

HAMISH ROBERTSON: Economists in the United States
calculate that the looming war with Iraq has caused a massive 15 percent
dive in stock markets and they warn that that figure will rise to 20
percent, if shots are fired.

While it's not surprising to hear that
markets drop in wartime, the thing that's unusual about these dire
predictions is the raw data used in the calculations.

The
economists base their findings on bets placed with bookies on the fate of
Saddam Hussein, and say the results are more reliable than those of
conventional stock market pundits.

Agnes Cusack
reports.

AGNES CUSACK: If you want to find what'll happen to stock
markets in a war with Iraq forget the financial experts and go straight to
the bookies.

That's the inside word from professors at the
prestigious graduate school of business at Stanford University in northern
California.

JUSTIN WOLFERS: I've got to admit that the first time
that I saw there was betting on the war in Iraq I thought it was in bad
taste, then I looked at the odds and of course realised that maybe there
was a chance here to make a buck or two.

And then ultimately the
academic inside me also got involved. I realised perhaps there was a
research project here.

AGNES CUSACK: Justin Wolfers [phonetic], an
assistant professor at Stanford runs courses on the economics of
betting.

He's been watching a market he calls 'Saddam Securities'.
To the non-economist, that's tradesports.com, a Dublin based online
betting services offering odds on the fate of the Iraqi
president.

JUSTIN WOLFERS: You can bet on whether or not Saddam
Hussein will be ousted by certain dates for instance whether he'll be
ousted by June 2003.

Now, why wouldn't economists be interested?
The reason is that we sometimes think that markets are efficient
aggregators of information and while that may not surprise you if someone
said that about the stock market or the futures market.

A lot of
people are surprised to hear that about the betting market. But why not?
Conceptually buying you know, a hundred bucks worth of a horse in the
Melbourne Cup or fifty dollars worth of Saddam Hussein at odds of four to
one on, it is not all that different to buying an individual stock or a
share.

AGNES CUSACK: Justin Wolfers and his co-authors estimate
stock markets in the US and Australia have fallen by a massive fifteen
percent since the talk of war began and predict that figure will rise to
twenty percent if shots are fired.

The academics used high-tec
statistics to track movements in markets and betting shops. When tensions
increase, stocks head south but bets soar.

JUSTIN WOLFERS:
Basically, what you can sort of do is correlate those two patterns and
then sort of try and draw an inference about the extent to which the risk
of war is really weighing on the stock market.

The difference
between a world in which we definitely go to war and a world in which we
definitely don't go to war is about 20 points on the stock
market.

Now at the moment the betting data says we're about a
seventy-five, eighty percent chance of going to war.

So of that
twenty percent, fifteen percent's already been priced in. That is to say
that the stock market would be probably fifteen percent higher if we'd all
put away our guns.

AGNES CUSACK: If you're still not convinced it
might help to know that the professors have a good track record with
betting.

In the last federal election in Australia they found the
bookies were closer to the mark that pollsters in picking individual seats
and the overall result.

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