The Case for Terrorism Futures
Critics blasted policy-makers Tuesday for dropping a controversial plan to create a futures market to help predict terrorist strikes.
Legislators like Sen. Ron Wyden (D-Ore.) may have found the Pentagon’s Policy Analysis Market, or PAM, “grotesque.” But proponents of “idea markets” say PAM’s quicksilver cancellation will rob the country’s intelligence agencies of a tool with a strong history of accurately predicting future events.
It’s a decision that’s “pure political,” said Bill Adkins, with Neoteric Technologies, which has a Defense Advanced Research Projects Agency, or Darpa, grant to design markets trading on the future of hybrid electric vehicles and the spread of SARS.
Senators expressed concerns when they discovered the PAM project, an effort to speculate on possible events in the Middle East — like the overthrow of Jordan’s monarchy or the assassination of Palestinian leader Yasser Arafat — as if they were stocks. The higher the price, the theory goes, the more likely the incident.
“The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it’s grotesque,” fumed Wyden.
The fact that PAM came from Darpa’s Information Awareness Office, the group of minds behind the notoriously invasive Terrorism Information Awareness database project, made the trading floor effort seem even more distasteful.
A day after Wyden and Sen. Byron Dorgan (D-N.D.) held a press conference blasting the program, the Pentagon agreed to drop PAM.
But supporters of the project point out that gathering intelligence is often a messy business, with payoffs to unsavory characters and the elimination of potential adversaries. The futures market, ugly as it may sound, doesn’t involve any of those moral compromises, said Robin Hanson, one of the earlier promoters of the concept of trading floors for ideas and a PAM project contributor. It’s just a way of capturing people’s collective wisdom.
“Among the many things we do for intelligence, this is one of the least reprehensible,” Hanson said. “Paying people to tell us about bad things. That’s intrinsic to the intelligence process.”
And a trading floor could be more effective than paying off a snitch.
Projects similar to PAM, like the Iowa Electronic Markets, which speculate on election results, have been surprisingly reliable indicators of what’s going to happen next.
The Iowa market hasn’t been perfect — it forecast a Democrat-controlled Senate in 2002. But over the course of 14 elections, the Iowa Electronic Markets’ stock prices were on average a half of a percentage point closer to the results of the actual political races than the final polls were.
The price of orange juice futures has even been shown to accurately predict the weather, noted David Pennock, a senior research scientist at Overture Services who has done extensive surveys on the reliability of such markets.
Traders on the Hollywood Stock Exchange last year correctly picked 35 of the 40 Oscar nominees in the eight biggest categories, according to The New Yorker magazine.