EU politics and economics

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It’s no secret that Brexit uncertainty has negatively impacted on the state of UK economy. Will there be a hard or soft Brexit, a short or long-term withdrawal, or even a second vote? When the dust settles, what will the relationship between the UK and the EU look like? With roughly a year to go until Brexit actually occurs, there’s still little idea about what leaving the EU actually means in practice.

Not knowing this near future, and, indeed, not knowing when we will know, has proved to be a significant destabilising force for British business. The indeterminacy of the deal has caused the EU and IMF to cut growth forecasts, is hurting investment in business, and is holding back hiring. The longer the business community waits for definitive answers, the greater the threat to economic growth.

As the UK is discovering, political, trading, and regulatory uncertainty makes all good things come to a halt. In times of fear and unrest, businesses don’t hire, consumers don’t spend, investors don’t invest, and innovation dries up. When tomorrow looks gloomy, the tendency is to live in austerity today- individuals, corporations, and entire economies are all fundamentally stifled.

In the run-up to the country’s departure from the EU, the unenviable challenge for the government is to establish confidence; easier said than done. In the worst-case scenario, organisations – multinationals especially – may decide they just can’t tolerate that uncertainty any longer. Staff and operations may be shifted to nations where businesses know what to expect, as JP Morgan and other banks have already begun to do.

Technology and psychology

While it’s not possible to bring a complete halt to the uncertainty brought about by Brexit, breakthroughs in technology and fresh understanding of group psychology are providing us with the next best alternative: the ability to predict the outcome of Brexit negotiations- in turn, suppressing some of that uncertainty.

Harnessing a psychological theory known as the wisdom of the crowd – a phenomenon by which large groups of people make considerably better judgments and forecasts than lone individuals –prediction markets like Delphy have sprung to life. Paired with relatively new technologies like blockchain, the sector is now booming and its application in the build-up to Brexit looks promising.

Forecasts sourced to the crowd

The concept behind predictive markets is relatively simple: motivated by financial incentives, crowds speculate on the probabilities of things to come; the larger the group, the more accurate the prediction. By aggregating the opinions of thousands of participants, everything from sports outcomes to swings in the stock market can be forecast with surprising accuracy. Groups of individuals, of course, aren’t always right, but in general, groups tend to be more insightful than single experts. This is especially true when complex subject matter and highly uncertain outcomes are involved.

The theory is that, because everyone has an opinion that is more or less correct, errors and psychological biases cancel each other out in the aggregate, and the collective judgement is, in the end, highly accurate; so long as people express an opinion that contains some accuracy, then averages correct the distribution.

The format has already proved its worth in the political world: in the tight 2004 election between John Kerry and George W Bush, a predictive market correctly called the victor of the electoral college vote correctly in all 50 states. In 2008, it forecast that Barack Obama was going to secure 364 votes within the electoral college, and with it the US Presidency. The actual result was off by a margin of just one: Obama secured 365 electoral-college votes. In 2012, the same prediction market accurately forecasted the results of the second Obama win with correct predictions in 49 of the 50 states. Over time, they have performed even better than Gallup polls.

Brexit predictions

The demonstrable success of prediction markets in historic political elections would suggest it can do the same for diplomatic negotiations such as Brexit. Although as individuals, we may not have the exact knowledge or foresight to accurately predict the outcome of Brexit negotiations, the wisdom of the crowd theory suggests that, with our combined opinions, this would be possible.

Being able to forecast the final outcome of the deal with relative accuracy – whether Britain will remain in the single market, whether it will be paying contributions to the EU, whether tariffs will be in place, and whether legal sovereignty will reside with the EU or the UK – could reduce uncertainty for businesses and citizens alike, bolstering consumer confidence, strengthening commerce, and boosting economic health. With certainty, comes the stability required to get a positive outcome from Brexit, whatever route is taken.

 

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