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Tuesday, July 29, 2003

Jeff Buehler sends me this link.

WASHINGTON, July 28 — The Pentagon office that proposed spying electronically on Americans to monitor potential terrorists has a new experiment. It is an online futures trading market, disclosed today by critics, in which anonymous speculators would bet on forecasting terrorist attacks, assassinations and coups.

Traders bullish on a biological attack on Israel or bearish on the chances of a North Korean missile strike would have the opportunity to bet on the likelihood of such events on a new Internet site established by the Defense Advanced Research Projects Agency.

...

The Pentagon, in defending the program, said such futures trading had proven effective in predicting other events like oil prices, elections and movie ticket sales.

"Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information," the Defense Department said in a statement. "Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions."
The Onion? No, it's the New York Times. The Pentagon's Defense Advanced Research Projects Agency, The Economist Intelligence Unit and a company called Net Exchange have teamed up to bring you this project.

Now I have three immediate responses.

1. It is a fascinating and interesting idea. Markets are indeed efficient and timely aggregators of information.

2. It is absolutely the dumbest idea ever to come down the pike. "Say, Horace, you remember the 2004 terrorist attack bubble? Man, we got suckered by that one!"

3. "Two Democratic senators who reported the plan called it morally repugnant and grotesque." I must agree. Whoever thought this one up should take a long walk off a short pier.

4. Reading the "Concept Overview" on the actual site, I notice the subject is not terrorist attacks per se, but general political developments in the Middle East. You can bet, for example, on whether the U.S. will recognize a Palestinian state by 2005. Another example given is the overthrow of the Jordanian monarchy, which might seem like a fun thing to speculate on if you're a day trader in Baltimore, but not if you're in Jordan. I have a hard time seeing how anybody could make a bet that "there will be a terrorist attack" since there's no empirical test (I love that phrase) of what constitutes a terrorist attack, nor even what constitutes a terrorist. Still, if Democrat Senators seize upon this idea to make the Pentagon look like a bunch of craven freaks, I'm afraid the freaks had it coming.

5. The more I look at it, the more it reminds me of SimCity or Dungeons & Dragons. This was something devised by the unsalvagably geeky. You know the ones: You get them drunk in a bar and they start drawing inverted yield curves on the backs of napkins.

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