Betting on the Weather As a Way to Manage Risks

Michael Giberson

You’ve heard the old joke about the weather, right? — everybody talks about the weather but nobody ever does anything about it. Well now you* can do more than just talk about the weather, you* can bet** on it.

*By “you” I mean, “accredited investors with a minimum net worth of $1 million,” pursuant to CFTC regulations, according to this story about WeatherBill appearing on Which isn’t me, but might be you. Or maybe, by “you” I mean, “businesses, not individuals,” due to Federal Trade Commission rules, according to this Newsweek story on WeatherBill.

**By “bet” I don’t mean to imply gambling is involved, according to the WeatherBill site, their contracts are “commodity contracts intended to be used as risk-management instruments.” So by “bet” I just mean you can take on a risk that, for example, you can use to offset a financial weather-based risk you are already exposed to.

WeatherBill is using a lot of weather data and some complex computer processing to open up the specialized world of customized weather risk management and make it available to more kinds of businesses (and perhaps “accredited investors”, too). As mentioned in the and Newsweek stories, businesses from car washes to ski resorts to restaurants with patios have used WeatherBill to help hedge their exposure to weather-based risks.

Yahoo computer scientist David Pennock offers additional commentary, describing the operation “as a combinatorial prediction market with an automated market maker”. See also discussion on WeatherBill at MidasOracle, including early skeptical remarks by Eric Zitzewitz which appear not to be borne out by WeatherBill’s early and apparently successful experience.