ForecastEx’s Daily Temperature prediction markets allow participants to take financial positions on daily high and low temperatures both domestically and internationally.
The board, station by station →
Prediction markets for daily high temperatures can benefit both participants and external observers. Participating enables better-than-average forecasters to profit from their predictive skills (“you must be right more than 50.5% of the time to win”).
Additionally, for entities with a direct stake in temperature-sensitive outcomes, these markets offer a way to hedge risks. For instance, analysis from the International Energy Agency indicates that in hot weather, each additional degree can alter electricity demand by several percent. Therefore, the difference between a 97°F and a 100°F day is highly significant operationally for entities responsible for power supply. A retail electricity provider selling fixed-price energy might buy 100°F YES contracts at $0.40 each. If the temperature reaches 100°F (and thus the contract settles at $1.00), the $0.60 per-contract gain would help offset higher wholesale costs associated with increased air conditioning and, in turn, electricity demand.
The financial incentives involved motivate individuals who perceive mispricings to take positions that guide the probabilities toward accuracy. These continuously refined expectations then serve as a valuable public signal. Society has long valued accurate temperature forecasts to manage energy systems, prepare for heat and cold risks, plan daily operations, protect agriculture, and make countless smaller daily decisions, such as what to wear. These markets offer a system for collecting and summarizing information from existing forecasting methods and services, presenting it in a clear probabilistic framework that emphasizes inherent uncertainty rather than sidestepping it.
The most conventional temperature readings in the US are recorded by weather stations, such as Automated Surface Observing Systems co-operated by the Federal Aviation Administration, the Department of Defense, and the National Weather Service. What is typically considered the most official of these for a given city is that city’s main airport’s station.
Temperature varies substantially in space across cities due to changes in land cover (e.g., park vs. concrete), proximity to the central district (urban heat island effect), shade, and other local factors such as hills and nearby bodies of water. Thus, precisely where the station is located can make a big difference.
Under the current terms and conditions, each contract asks whether the highest (or lowest) temperature at the named station will exceed (or be below) a stated whole-degree threshold on a stated date.
The contract resolves on the daily temperature values displayed in Weather Underground’s Daily Observations table for the named station and date, which is the station’s record of METAR observations, the routine and special reports the station publishes through the day.
The day runs from midnight to midnight local time at the station.
The day’s highest recorded value in that table settles the high contracts and the day’s lowest settles the low contracts, in whole degrees Fahrenheit (whole degrees Celsius at the international stations).
A high contract at a threshold resolves Yes only when the settled value is strictly above the threshold, and a low contract only when it is strictly below; landing exactly on the threshold resolves No.
One important note is that when a strong cold front is moving through, the high temperature for a given day between 00:00 and 23:59 local time can sometimes be recorded at midnight, whereas most conventional weather forecasts you see online or on TV are for the afternoon high.
The exact terms and conditions are here.