Promoters of film futures exchanges no doubt have the best of motives. But they have not managed to make the case that box office futures are workable – or desirable.
Futures that predict box office receipts for film releases are an appealing idea. Harness the collective brains of the market to predict whether a film will do well, and you have a useful hedging tool.
But the more you think about this notion, the more troubling it becomes.
Go back to the basics for a minute. Insurance is for risks that are unequivocally bad for everyone – like fires and shipwrecks. The insurer gets paid for putting its capital at risk to protect others – but it does not win big if these disasters happen.
Futures are for risks that are good for some and bad for others – essentially, price risks. Each party trades potential upside for certainty, and either can make...