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The steadily worsening security situation in Iraq has led many to wonder whether the country is once again descending into anarchy. A recent New York Times article, for example, spoke of “new fears that Iraq is returning to the bloody sectarian violence that nearly tore the country apart in 2006 and 2007”.
Going by the news feed, casual and informed observers alike might well conclude this to be a plausible outcome. Yet home-grown Iraq Stock Exchange (ISX) investors – some of the most knowledgeable insiders around – don’t seem to think so.
Financial markets can be surprisingly good prognosticators, thanks to their ability to aggregate information held by many different people and the incentives they provide to “put your money where your mouth is”. Thus, prediction markets, where participants can bet on the outcomes of events such as presidential elections, often outperform pollsters."
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