Futures market for terrorist attacks

stole my thunder; here's what i was rushing to post:

Pentagon Abandons Plan to Bet on Next Terrorist Attack
http://customwire.ap.org/dynamic/stories/T/TERROR_MARKET?SITE=COVAI&SECTION=HOME&TEMPLATE=DEFAULT
http://news.yahoo.com/fc?tmpl=fc&cid=34&in=us&cat=us_armed_forces
“WASHINGTON (AP) -- The Pentagon will abandon a plan to establish a futures market to help predict terrorist strikes, the chairman of the Senate Armed Services Committee said Tuesday.
Sen. John Warner, R-Va., said he spoke by phone with the head of the agency overseeing the program, Tony Tether, "and we mutually agreed that this thing should be stopped." Tether is the head of the Pentagon's Defense Advanced Research Projects Agency, known as DARPA.
Later, in an interview, Warner said that DARPA "didn't think through the full ramifications of the program."
"The head of DARPA inasmuch stated that to me by phone and he on his own initiative is looking to frankly stop all engines on this matter today," the senator said.
Warner announced the decision not long after Senate Democratic Leader Thomas Daschle took to the floor to denounce the program as "an incentive actually to commit acts of terrorism." Warner disclosed the change in plans during a confirmation hearing for retired Gen. Peter J. Schoomaker, nominated to be Army chief of staff.
"This is just wrong," declared Daschle, D-S.D.
Warner said he consulted with Senate Intelligence Committee Chairman Pat Roberts, R-Kansas, and Appropriations Committee chairman Sen. Ted Stevens, R-Alaska, and they agreed "that this should be immediately disestablished."

From the Dept of this has too be true because it’s to insane for anyone to make up. Now do you begin to see how insidiously insensitive and ill prepared the civilian influence controlling the Pentagon is. They planned a commodities exchange on investors by which people would wage on where the next major conflict, the next coup, & the next terrorist strike would hit. How abso-freaking-lutely absurd! Heads have to roll

 

This might add a whole new meaning to 'handel met voorkennis' whatever the hell that might be in English.

Glad I posted this

 

Dude, it was a DARPA project. Research, it's basically war games in another form. Chill.

It's not any worse an idea than pollution trading.

 

How about they start a service where you can bet on peace and they likelyhood the federal government's intelligence agencies will prevent future attacks?


oh wait.....

 

That's assuming a major terrorist attack with obvious consquences.

 

Stop and Think People

It really is suprising how even the rah-rah free marketers and "conservatives" on this board can get their knickers in such a twist when it comes to something that gasp! shows some original thinking on the part of the defense department.

A couple of facts, okay...

1) It was a DARPA research project, not a formal policy thing. DARPA, that's the Defense Advanced Research Projects Administration -- the folks who gave you the Internet -- invest in all kinds of whacky stuff from invisibility shields to velcro. It's one the few pure research facilities left on the planet. And yes, not all of the ideas um, pan out. Total Information Awareness is something that lots of people figure is, while technically feasable, a Bad Idea(tm). But hey, that's science. Others, like adaptive specturm use and the Next Generation Communications project, show a lot of promise. Others, like Loki are just freakin' cool.

Oh, the website for the Policy Analysis Market can (for the time being) be found here.

It also has the backing of the Economist Intelligence Unit, probably the finest private intelligence agency on the planet.

2) For a long time now, economic and mathematecal researchers have been fascinated with the predicive nature of futures markets. Predictive as opposed to forecasting. No, I don't completely understand the difference myself. However, here is a good analogy. The Iowa Electronic Markets have been going for years and lots of research has been done into the predictive effects of markets there. Yet another thing Iowa leads the world in (buffs nails on lapels). I strongly suspect that the DARPA effort was based a lot upon the adademic work there and in other places.

Folks might also want to check out the Hollywood Stock Exchange (which I play frequently and do reasonably well in -- up 14.7% this year so far) an d is a really good predictor of ticket sales.

Why on Earth would we let pure ignorance of the complexities of the system prevent us from looking into anything that might actually make us safer? Especially when it costs next to nothing -- $1M spent on a year or two of research is < 1 day of operations for an armored division -- and requires no invasions, armed force or spies on the ground... just smart people putting their money where their mouths are. I guess that leaves most of this crowd out.

Now, weather this thing would have worked or not. Who knows? Immoral? Hell, our entire economy -- the lives and liveleyhoods of billions -- depend upon futures markets! Don't tell me that betting on terrorism is immoral. Especially if it helps to actually predict or prevent it. Then it is quite the opposite isn't it?

Look, boys and girls... if you went back to 1910 and tried to explain to Congress how you planned to build a 200 ton aluminum aircraft that would carry 350 adults halfway around the world in 16 hours without stopping, they'd have hauled you off to a padded cell.

Any sufficently advanced technology is indistiguishable from magic.
- A. C. Clarke



Too bad the idiots are running the show in both Congress and the So-Called Liberal Media (tm).

 

One thing I'd be interested in is how seriously people take govt. terrorist warnings (yellow, orange, etc.) Would an official increased threat level translate into significantly higher prices for terrorism futures?

 

I've seen a lot of anecdotal stuff in various media reports about how the first-responders out here in the real world are a) rather confused by the Threat Meter and, b) kind of burned out (financially and emotionally) by the repeated elevated warnings. It's getting to be a bit of a "cried wolf" thing.

On another note. I was just perusing the PAM website and it specifically states that it is/was limited to only 1,000 traders initially with planst to expand to 10,000. I would imagine then that the market participants would compromise a pretty elite group in knowledge insiders, not just the unwashed Joe Schmoes who could throw the market all over the place.

 

So in other words, another way for Bush to makes his pals another pile of money. Great!

 

cman -

With all due respect, you are wrong. There is a difference between betting on who will win the next election and betting on when XXX will get asassinated. Just like it was wrong for our government to do the types of human research that they did in the early part of the 20th century, it is wrong for them to participate in this no matter how much good could come from it. There is a line that shouldn't be crossed and they crossed it.

 

Re: Stop and Think People

Original thinking, yes. But that doesn't make it any less macabre. And prone to gross conclusions.

Hell, left-wingers get all worked up over the freaking Carlyle Group. You mean to tell me they won't get worked up over this?

As I said, turning this original idea into a real, functioning marketplace at a time like this strikes me as dumb.

 

It's a research tool prediction market. The way that those generally have worked in the past is that everyone gets a certain amount of credit to put in the market from the start, and those who make the best predictions end up having the most credit to make future predictions. Thereby the market is able to determine who is making the best predictions and focus the predictive power on those who are doing the best job.

It is a CLOSED SYSTEM. Open markets don't work for predictions because you can funnel in more money from your other ventures. Rich people end up having all the say instead of smart people with game credit. Just like government.

 

From the PAM website:

So, I wouldn't think of this as a Vegas style, "G.W.B. get's whacked by an irate Marine, 4.25 +1.25" (I DID NOT just say that!) type thing. Specific futures, identified by people in the know will be issued as warranted.

As for personal enrichment, I also don't think it will work that way either. If it is anything like the IEM, it will be for nominal funds; enough to make the market interesting, but not enough for anyone to get really excited about if they take a bath shorting futures on Secular Iraqi State futures.

Lastly, just because DARPA funding is pulled, doesn't mean the thing won't go forward. The other two sponors, IEU and NetExchange are private firms and can do whatever the heck they want.

As for those who get squeamish trading real or fake futures based on human lives. I'm sorry but get a grip. Ever seen what an RPG does to the inside of a Humvee filled with soldiers? Me either. But if this can help prevent that, I'm all for it.

 

The part of this I don't like is the idea that futures markets create real information out of thin air (like the idea that stock markets create wealth out of thin air). That is just bunk.

I don't have anything against creating a system by which hundreds or thousands of "experts" can get their opinions combined into a more understandable form - and a market like this can certainly do that. But a market was chosen simply because of the before-mentioned idea that markets have some sort of internal magic that makes everything work. A market can even have problems of its own, where participants buy events they don't even believe in just because it is "hot" at the moment, and would improve their portfolios (like how people have bought up Amazon stock recently even though the company will never ever make money).

They should simply create a clearinghouse where the experts can input their predictions and their confidence in them, and can update them at will. The predictions are then simply added up and a result emerges. This will have the same predictive power without the emotional baggage from the invisible-hand bunch and the don't-trade-in-human-misery bunch.

 

So how does the Pentagon set up a shill partnership to "buy" all it's underwater futures contracts? That's why this wouldn't work in the public sector.

My guess is that these folks had experience and knew it was a losing proposition.

 

You just described a futures market.

1) Post a probable outcome, e.g. No Confidence Vote for Sharon (NCVS).
2) Give probable outcome a confidence rating on scale of 1 - 10, say 3.5 for starters.
3) Allow peers to add their scores to the mix.
4) Result = weighted average.
5) Allow people to change their scores based on real-time data. Weighted average moves up or down.

I will bet you -- and I use that term deliberately -- that when the weighted average of NCVS hits 7.75 or so that Sharon's government is tottering in real life.

The ONLY difference is that in the PAM system people vote with money -- real nominal currency as in the Iowa Electronic Exchange (accounts are limited to $500) or fake money a la Hollywood Stock Exchange, where I am a multi-millionaire.

 

Whimps!

I'm not neccessarily advocating for such a thing. I just think it was a very intruiging idea that deserved more than a hasty burial by luddites.

It also goes to show how on the defensive the DoD is right now from a P.R. standpoint. Six months ago when they were riding high, Rummy would have just stepped up and said, as I did, that "We can't afford to overlook any possible weapon in the war on terrorism," and called the people who thought it was a waste of money ingorant clods right to their faces.

Now, it's all red-faced sweeping the whole thing under the carpet.

 

The money makes all the difference. The problem with a market is that the market becomes the important thing, not the substance behind the items being bought and sold. You can take a momentum trader from Wall Street and put him in the Middle East Death market and he can do great without any knowledge of politics whatsoever. Clearly that won't help figure out who is getting whacked next.

 

The things being reported in the media as potential contracts are way out of line with the reality of what would have gone on. It's all scary media crap designed to incite fear, uncertainty, and doubt, and to get people's hackles up.

A similar game (I will persist in calling this a game, since MSNBC is reporting that the testing accounts would have contained $100 in starting cash, would have accepted no deposits, and contracts would have had a starting value of $1, that's not real money in anyone's world) is available here: http://us.newsfutures.com/

The major differences are that you start out with a larger bank account, and you can receive free contracts every day so long as you are unsuccessful, and contracts have a maximum value of $1. Every contract has an inverse contract.

Check it out and maybe you people will understand a bit better what's going on. There's no soccer futures right now, but you can buy contracts in the outcomes of MLB and other sporting events (there were world cup games last year).

Actually, if you read French, you can buy soccer contracts here: http://sports.fr.newsfutures.com/

 

I'm imagining 2-3 new LFODThreads (tm).