I think this is an interesting idea: A policy analysis market sounds quite innovative. I'm not familiar with why it failed or how it would work exactly, but it sounds good.
You guys obviously don't work in intelligence. You basically copy other people's work, make crap up, and if you're right (or the guy you borrowed from is right), then you take credit. If you're wrong, oh well, it happens to everyone. Try again. This is a very insulated community of people who don't do well in the real world. In other words, like so much of American society, there is no sense of responsibility or accountability. Groupthink at its finest.
I don't know why markets would be any better at picking out a good idea than an intelligence officer's hierarchical superiors. The problem is that once you have a market, then you have people who play on meta-analysis rather than the worth of the idea itself. Much like people bought Pets.com because it was going up and everyone else was doing it rather than based on the worth of the Pets.com company itself. The problem is only that our hierarchical system of experts is broken. Normally, it should work by removing those elements that make a mistake and moving up those elements that get it right. Now we remove elements that get it right and give presidential citations to those that make mistakes.
Before we all go off thinking this is a crazy idea... what if the media did something like this for columnists and tv talking heads? If over a period of time you constantly spew garbage, wrong facts, misinterpreted polls, and speculations that are proven wrong - then you lose your high-paying columnist gig, or you never get invited back on tv again.... Well, pretty soon we would have a very liberal media indeed, as all the conservative rightwingers (and Lieberman) would never be heard from again. Would that be all bad an idea?