"Morbid" is probably the best word for it. I heard about this from a mailing list I'm on, and posted the following response:

*

*Office of the general in charge of the program--his secretary pokes his
head in*

"General, I've got Joey Buttafuoco on Line One, Geraldo Rivera on Line Two,
and Andrew Dice Clay on Line Three. They all think this idea is in really
bad taste."

*

I suspect this whole thing is a clever ploy by the Bush Administration to be able to indict terrorists as inside traders as a means of getting the Left on board; after all, they'd never engage in apologetics for white-collar criminals. . .

I would ask for more value for my money and have a careful and non-biased look at the track record of election markets first. Contrary to what their inventors say election markets don't fare better than surveys. There are lots of bad commercial surveys out in the public before an election, so it's easy to pick on them. There are few election markets which usually have not much publicity. That makes it easier to let bad forecasts slip away. In general a tendency has been shown for election markets to show too high shares for small parties and unlikely events caused by the logic of the market game. These shares are more volatile and offer more opportunities for the traders intent on maximing their profits.
The historic example with the experts betting on where to find the bomb is not a good one. They were NOT acting in a market, they just applied probabilistic tools to a situation where human language was not fine-grained enough.

Defeating America's enemies through capitalism...this ought to make the left wet their pants with rage.

Notice how the story was immediately spun to center around the terms "betting" and "gambling". This is pure sensationalism by the media and a deflection of the real intent, which is to use solid statistical and market theory to creatively solve a problem.

My only problem with it is that it will only be open to a small number of people. (they say 10,000 by the 2004) The results will be better with more people participating, and the more people they admit the higher my chances of being one of them!

This is the greatest thing since sliced bread! When I worked in the intelligence field, one of my principal concerns was the lack of coordination between imagery, signals, human, and other sources of intelligence information, with each faction claiming superiority over the others. Traditional branches of service such as the Army are so obsessed with rank that sometimes the only way I could make myself heard was to persuade some officer to be my mouthpiece, or make him think he originated the idea himself. In the intelligence community, you can rest assured that someone, somewhere is studying a contingency, no matter how unlikely. That's why I wasn't surprised when I heard that there were analysts who came to the conclusion that when Osama bin Laden's first attempt to destroy the World Trade Center failed, he would send other people at a later date to finish the job. A system like this would reward people for life-saving insights and hopefully head off disaster at the pass.

People would participate in this if no profits were to be made, look at Blogshares - and it's not even trading anything "important" like intelligence info.

It reminds me of an old columnist in the Rocky Mountain News (can't think of the name now) that talked about a dead pool he was involved in. He would get together with various Denver luminaries on or around New Years Day and they would all pick five major celebrities that they expected to die during the next year. The one who accurately picked the most won some sort of prize.

Morbid? Yeah. Tacky? Probably. But if it gets results, what's the problem?

Nonononono....the real danger is there might be some temptation to profit by actually (covertly) executing a terrorist attack yourself.

One out of five Germans thinks we've already done that.

Stephen,

Noting your comment on my site, it'd be interesting to see exactly how many other bloggers simultaneously made the connection between this story and the Craven/Scorp incident.

And the notion of "insider trading" on a terrorism market could itself be turned into an intelligence tool, couldn't it?

This is a really, really bad idea.

- If the market is anonymous, what stops terrorists from playing and getting money for killing Americans?

- Unlike the weather, which can't be manipulated, and currencies, which can't realistically be cornered, terrorism can be carried out by a few individuals - it basically puts a price on the heads of every world leader for any group of dissafected soldiers with a bank account.

- The acts themselves are easier to manipulate than the market that aims to predict them.

- Since you can short these acts, there are incentives hype the threat of a certain attack at a certain time, which is easier to do than whip up the threat of a rise in the Indonesian Rupiah. Do you need to be reminded why Tom Ridge annoys so many people?

To follow up on Jeffrey Utech's comment, the columnist he's probably thinking of is Jim Bell. He had an essay following up on his idea entitled "Assassination Politics". I think there was also a Clint Eastwood movie called "The Dead Pool" that was somewhat similar.

It is rare that futures markets thrive in small and/or unstable countries or in events too-precisely specified, one reason being that parties to prospective futures transactions would have too much ability to manipulate events. PAM doesn't sound like futures contracts would hedge against bad weather in Syria.

I think Jeffrey might be on to something in that an underlying purpose of the PAM might be not only to predict future events but also to, umm, encourage them.

Charles -

But if the terrorists bet a significant amount of money, don't they signal their intentions and alert the authorities who can they take steps to prevent it? I guess it partly depends on how specific the prediction has to be.

Moot point. It has been cancelled.

Couldn't something like that be started privately, though?

Responding to Charles's comment, I question the degree of "anonymity" in the market. Presumably there would have to be some clearinghouse to a) determine if the events dictated in the futures contract had indeed occured according to the terms of the contract, and b) to transfer funds between buyers and sellers of a contract should the terms of the contract come to pass. Parties would have to give up some anonymity to the clearinghouse if they expected to cash in on a future.

What would happen if someone just gets lucky on a contract? Why would anyone buy any contracts if they round up the winners?

Well, I suppose you wouldn't want to enter into a contract that was too specific, now, would you ;-)

Exactly. The government would be remiss if it didn't go after winners, even though the efficient functioning of the market would demand the people be allowed to buy and sell contracts using all the information at their disposal without distortions (such as the fear of arrest in the case of success).

Does our beloved Admiral Poindexter get ANY credit for this? Seriously, what happens when the authorities, being alerted to the probability of an impending event, then take steps to avert said event, but in the process ace out the gambler/tipster who alerted them to said event in first place. Everybody's happy except the guy who's laying down the chips. Thats for starters.

Well, even if cancelled, if there is indeed a market for this, then it won't rely on ARPA or the government to grow and develop. If the "floor" is built, the buyers and sellers will show up.

While reading the article that reported how this idea was smothered in the crib, I noted that the government spent over half a million dollars on it already. Where did the money go, and did we get any return on our investment?

This reminds me of a book I read: "Earthweb" by Marc Stiegler.

Premise: Alien automated ships are sent singly every five years in an attempt to destroy humanity. Earth sends five people to infiltrate each ship as they get into range. To deal with the internal defenses, an "internet betting" pool is developed to assist the infiltrators by predicting and solving problems.

The plot is standard, but the tools to solve the problems are what (in my opinion) make the book.

I think that, ideally, such a system would have to some add'l weights:

E.g., credibility, multiplicity of sources, etc.

If you had a single source saying "XX is going to happen," you might discount it, and you might also add some sources to check on it.

But if you believe that any larger undertaking, involving many people, will affect many different sources of info, then the credibility of the tip goes up. For the possibility of a coup in North Korea, frex, or Syria, you'd have quite a few possible indications (troop movements, radio messages, families being moved around) which might trip different sources. That'd be more credible, I would think, than one person throwing out "I think King Hussein's not long for this world."

Now, sometimes that one person may be right and everyone else is wrong---but in the main, they're not.

The theory behind the market is that money moves from the unlikely to the likely, right? The government follows that money and then tries to prevent the events that are tied to the contracts that are trading at the highest volume (getting the most action?).

My question is this: why would an individual purchase a contract knowing that it will trigger the government to try and make that thing not happen? It seems like it's not just betting on the likelihood of the event but on the inefficiency of the US government at the same time.

There's a likelihood that the project was based on a combination of open source intelligence ideas with a fairly well known futures methodology. I've posted some speculations here. A pity they seem to have pulled the plug without explaining or debating why it might be useful to have a mechanism for integrating many sources of information on rather essential problems, assuming the experiment had worked. Such is the state of politics today. Watch and weep.

Just read news about the cancelling of the program. Glad to see we have people in the Pentagon willing to defend their ideas...

Can I buy stock in "The Government Cashiering Innovative Programs Based on the Criticisms of Ignorant Closed-Minded Demagogues"?

Put me down for 1000 shares. I'll look forward to an early retirement.

If I remember correctly the same betting procedure was done by the same man to find the U.S. S. Scorpion.

From an excellent book Blind man's Bluff.
(story about subs and intelligence gathering in the cold war)

Question:

Who has proven the "Efficient Market Theory"?

Answer:

No one.

It's a theory. In fact, the financial markets over the last five years would lead us to believe that great externalities and inefficiencies can occur.

Sorry for getting a bit technical, but the blind acceptance of this unproven theory is a key issue.

Terrorism will be defeated without this absurd proposal.

This site, TradeSports, has been mentioned in the NY Times and the New Yorker. It is essentially an on-line betting parlor offering a wide range of propositions.

The politics section has markets for the Dem nominee, and the 2004 election, among many others.

I also note bets for finding WMDs in Iraq, finding Saddam, Gray Davis ascendant, and lots more.

What an strange critique, Gary. Market efficiency is not required for prices to convey useful information.

I think this is, or alas was, a great idea.

See, e.g., Hayek, for a nice statement of the motivation behind it:

We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

For other innovative markets, see catastrophe options and Saddam Hussein futures which used to trade on the market Tom linked above.

As for terrorists seeking to profit from the existence of such a market, there was nothing stopping al Qaeda from, say, shorting airline stocks.

I want to second Alexander on _Earthweb_. It was a fun book on the "run around and blow stuff up" level, and it was very interesting in how the market worked.

This just in! The TradeSports site has added two Kobe Bryant contracts - (1) will it go to trial (currently shoiwng a 60% chance that it will), and (2) will he be found guilty by a jury (mistrial, plea bargain, dismissed suit pays zero). This is currently around 20%.

The Iowa Electonic Market is soooo yesterday.

Second on Mike M's comment. I have rarely been so disappointed as I was yesterday listening to several US Senators discussing this proposed program as if Satan's minions had dreamt it up. I would have been in favor of implementing it, although I have seen very good critiques of it on comment threads here and there. You'd think some of these walking, talking hot-air balloons would give a little more credence to a group that invented the internet.

Group? What group? I thought it was Al Gore who invented the Internet.;)

Bloodthirsty,

I know, I know. I was cracking up when I wrote that last line thinking about Gore.

Anyway, some of these Senators give the concept of knee-jerk reactions a bad name.

It's a brilliant idea. But the wisdom of the plan is not only a question of logic. There is indeed a moral angle: Do we want investors making money from terrorist attacks so directly? Those who say, "Yes, it's worth it" have made a moral decision. Morality is bound up into the fabric of the plan itself too. To advocate that we should try to prevent terrorist deaths is a moral position; to create a means for preventing the deaths is nothing more than the pursuit of that moral goal. To say, "We must prevent the deaths at any cost or at least at *this* cost," is another moral decision. It's disengenous to say that people should suddenly turn their moral meter off when evaluating the moral costs of the plan. In fact, it's illogical.

If the market was open and large enough, this thing could be used by investors to hedge political risk and separate a significant portion from financial markets.

This may all be academic now (or maybe not if some offshore bank gets a notion or two into its head), but I still have Jeffrey's questions relating to the fact that the "wager" placed would likely influence the probability of the outcome. That and the fact that the individual in a position to know the relevant terrorist info is most likely to profit and may even seek to engineer the event. In the end I'm as disgusted with our philistine politicians as ya'll but I have a feeling there may be a few too many slips tween cup and lip on this one.

Evaluating this idea doesn't demand people "turn off their moral meter". It demands they turn off the kill switch the meter trips before all the costs and benefits are evaluated.

"Yet another example of how free markets produce more accurate results than political processes": Your UPDATE on the use of an historical example where probabilistic reasoning was used, amounts to:
"You said: 'The sky is blue'. That's what I said. The sky is red and let's not go into details. I know I am right." So everything is a market, no matter what it is.

"Yet another example of how free markets produce more accurate results than political processes": Your UPDATE on the use of an historical example where probabilistic reasoning was used, amounts to:
"You said: 'The sky is blue'. That's what I said. The sky is red and let's not go into details. I know I am right." So everything is a market, no matter what it is.

I'll be suprised and disappointed if someone doesn't pick this idea up.