Colin -- don't you find it disturbing that the admiral was able to ride out the TIA, but not a footnote to the TIA proposal (which is all this was) ?
I feel like Poindexter got Borked by our side, and while I'm not sad to see him go (I feel he should never have been there in the first place), this isn't a victory for political debate. And, as recent events have shown, the Republicans are better at this game than the Dems have been.

Cebra,

I too am in the Financial Services Field. I am licensed to sell both life and health insurance. Certainly health insurance is worthless unless you get sick now and again, and life insurance is a bet with the insurance company on how long you will live.

Your argument about corn futures is interesting, but it's not the same. Farmers may lose their farm, and some may go hungry, but people make and lose money on corn futures for reasons other than 3,000 people losing their lives. Certainly, disasters can make or lose fortunes in the futures market, but they are almost incidental. The markets go up and down in the absence of disaster as well.

As for shorting hotels, airlines, etc., that was a very good bet the way the stock market was going before 9/11. You only need a few lay-offs and a slight recession for such bets to pay off.
You don't need a disaster.

I really do, however, understand how it is supposed to work. 80% of finances are psychological, and only 20% is mechanics. It's the psychological that drives markets, especially one that measures political stability. And yet it is the psychological that doomed the idea before it got off the ground.

Besides, as Ennis points out, it wouldn't work anyway. As I wrote above, "who among the players is going to influence the market enough for anyone to gain any intelligence?" Those in the know won't play, and the rest of us will just make blind wagers.

David

Here's a quote from the DARPA paper that proposed this scheme. For one thing, this would have been an expert market only.

[From page 68 of http://www.darpa.mil/body/tia/TIA%20DI.pdf]

The application of FutureMAP within TIA will answer questions such as "Will terrorists attack Israel with bioweapons within the next year ?" To answer this question, FutureMAP would aggregate information from a variety of experts, e.g. analysts for Israel and the Middle East and specialists in Bioweapons and other technical areas. The technology question is how to combine this disparate information.... FutureMAP's innovation is to use markets to replace today's approach of discussion and consensus amongst experts.

The Admiral retreats. At least something good came of all this.

I have to say that this has been an interesting example of a story with a distinct, broad reflexive response which, upon learning more, reveals a compelling kind of idea lurking in there somewhere. And cheers to the even-handed posters here for pointing that out (though I still think it doesn't really shape up as a good idea).

Even though this was not a traditional liberal-conservative issue (or at least, from my very cursory tracking, it didn't seem to be overly partisan, here or in public), it is a good case study of how hype will almost always take down subtlety... in a snap. Good to remember this formula... and to remember that formulas work backward and forward: that is, liberal hype is no worse than conservative hype. (Perhaps its a question of quantity? Perhaps the Piles of Hype one sees are a reflection not of the actual quantity, but rather the effect of looking through a left- or right-handed lens. What do I know? I don't eve work here.)

In any event, I'm glad that Ish has illuminated this issue for me and helped me look under the Unwelcome Mat. Thanks, Ish!

Generally, the field I operate in is the analysis and prediction of conflict, so I've been having a hard time resisting jumping in. I'm afraid I'd waste alot of time if I was to try to write down and make coherent my various thoughts on the subject, so I'm just going to restrain myself to some side remarks.
[Sorry if these aren't coherent thoughts -- I'm trying to dash them off]

Broadly, I agree w/ Jim and Cebra here. I thought the proposal was done in by the fact that it was morbid and people found it distasteful, even though other futures markets also involve suffering.

Think of this: wouldn't it be great if a country could take out anti-famine insurance ? Well, implicitly this would involve the creation of a "famine future", even if it's never explicitly done. As a matter of fact, right now one can profit off of predicted famines simply by investing in companies which do well when a famine occurs. Yet we would probably think that anti-famine insurance was a good thing.
One question people are asking is why do we need money attached to a predictive mechanism ? Well, it turns out that people talk alot of shit about what they think might or might not happen, but once they're forced to put their money where their mouths are, the amount of bullshitting goes down significantly. There are still problems here, since $100 is a little to some people and alot to others, and we would penalties and gains to be the same for people no matter how wealthy they are. Furthermore, we would also want to control for attitudes towards risk as well. Still, it provides some form of getting people to indicate implicitly how sure they are about something, and this is important.

Do I think that this market would have worked well ?
Actually no, for the reasons that were brought out in the op-ed piece. For markets to work people have to have some information to base their thinking on, you want lots of participants, and you want lots of trades. I don't think that these conditions would have held in this case so I think that such markets would simply have generated alot of noise. Somebody might have gotten lucky and guessed a few events in a row, but essentially people would be guessing and there would be little to learn.

Still, broad political and economic futures would be quite interesting and I'll be we'll see them somewhere else pretty soon.

N

David,
Your 9/11 speculation is kind of what I was talking about when I mentioned corn futures. If you are in a financial market, you are often making an implicit bet one way or another on tragedy. Anyone who was short reinsurers, airlines, hotels, oil futures, or New York City municipal bonds or long defense contractors implicitly had a bet laid on this particular tragedy, and I'll bet everyone collected despite the deaths.

Or, more mundanely, the market for insurance is in essence a bunch of bets on tragedy and as such tend to reflect the best probabilities of various kinds of tragedies occuring. Yet no-one says, 'yuck' and shuts them down. There's even a direct analogy here--you take out life insurance, you die; how can your spouse even live with herself for taking what can only be considered blood money that is offered by the insurance company.

Or, to be even more pedestrian, if you own bonds period you benefit when the economy tanks, people are thrown out of work and interest rates decline.

Anyway, It also doesn't sound like the market was anticipated to offer contracts on specific events unless there was movement in general 'political stability' contracts that indicated that trouble was already afoot.

For those who've been able to suppress the gag reflex so far, there's a good discussion about PAM going on over at Brad DeLong's blog, and one of the participants, James Surowiecki has posted a more put-together version of his thoughts at Slate.

Again, the point of such a market would be to prevent bad events from occurring. I can understand criticizing the idea and poking (legitimate) holes in it, and I can understand blasting DARPA and Poindexter for the way they went about developing and communicating the idea, but I don't think it's fair to say that it is "inhuman" or "sick" to consider it.

Ok, so there is no insider trading, and it's only $100 a pop. Go back to the 9/11 scenario. Who is going to collect their $100 on the deaths of 3,000 people? If you had 9/11 and "won," how would you feel? All that carnage so you could win a lousy $100? What's the point? And if you can win a maximun of $100 anyway, who is going to play? And who among the players is going to influence the market enough for anyone to gain any intelligence?

David

At $100 a pop, it's perhaps merely somewhat gruesome. But that definitely explains the general idea much better (Hey, newspapers, it's so hard to get that in a headline?)

So, have at the merits, I say. And yet, I still think a better idea would have been, say, to find Osama Bin Laden rather than invading Iraq.

Not to change the subject!

Also, if you want to make a killing on politics, you can already do that. Just use TradeSports to place a bet on the next Supreme Court Justice to leave office, kill said Justice, and retire happily.

If you think you can get away with it.

So, if TradeSports isn't getting our leaders killed, and if FutureMAP had no significant payout, what was the concern again?

And Andrea, the main reason I'm following this story is that I would kill to play, so to speak. Even if there was no money involved. It would just be cool.

Before folks get too far down the road of "won't this mean people will make millions on the suffering of others," let me lift a couple of quotes from one of the articles I cited, for those of you too busy to read them (which I totally appreciate):

1. " The objections raised by politicians and opinion writers were generally based on misunderstandings of what was actually proposed.

Take the claim that terrorists could speculate in their own future activities and reap a windfall. First, the maximum gain from a trade was restricted to less than $100. This would not be of much help to terrorists' fund-raising activities.

Second, the market would have been monitored for evidence of insider trading. If someone managed to circumvent the trading limits and made a significant amount of money speculating on a terrorist attack, you could be sure the C.I.A. would be right behind the I.R.S. in investigating.

If the federal authorities were alert enough to find enough evidence to indict Martha Stewart, why would one think that Osama bin Laden would be able to avoid detection?"

2. "In any event, assassination futures were not among the planned securities, contrary to most press reports. The market design allowed traders to propose securities in various events, and the Policy Analysis Market Web site speculated that some traders might propose to add securities in assassinations. That off-the-cuff speculative remark had fatal consequences, alas.

The securities that were an essential part of the auction design were indexes of political, economic and military activity. The most useful such market would probably have been a market for futures in a "political instability index," a weighted average of various political indicators, like the number of mass demonstrations, unemployment levels, arrests Â- and, yes, assassination attempts. (Type "political instability index" into Google for some examples.)

If the markets had been pitched in this way, I doubt that there would have been many objections raised."

Hey, why not just get bookies? If it's good enough for Israel...

Ya know, this is really just like the lottery, except that it has slightly better odds. In fact, unlike the lottery, but like the stock market, you can engage in "insider trading" if you know someone who is planning an act of terror -- or if you are planning one.

But let's assume that everyone's knee-jerk reaction was just that -- a knee-jerk, instinctive "yuck," and that you are correct that it's a good, "outside the box" idea.

Let's suppose that it has been going on for years, now, and people have been betting that a tragedy will occur for some years, and the tax coffers have been getting filled, like the lottery, by people who are trying to get rich quick.

Now, comes 9-11-2001.

Amidst the horrific tragedy, someone wins $10,000 -- or even a million dollars. How can they think of collecting? Do they jump up and down and say, "Wow, look at all the carnage! It means I won!"? or can they even live with themselves for even thinking about collecting what can only be considered blood money?

What if someone wagered their money in the market and they won because a close friend or relative got killed? How does someone live with that?

But what is more important to a terrorist: to win big money, or to acheive a political end? Heavilly bankrolled terrorists could play a lot of money on false alarms, and strike during lulls.

The problem here is in theory. Yes, "game theory" works, and "brilliant minds" conceive of such things. This idea, though, is inhuman.

David

You know, when I heard about the PAM on the news, my first thought was "I bet Jimpy would want to play." I agree that poor taste, in and of itself, should not invalidate an idea. (If I thought that, I couldn't be a fan of underground comix!) But in a taxpayer-funded context, it probably doesn't help. Anyhow, I don't see why someone in the private sector can't go out and (as it were) execute this. There's no shortage of private dead pools and no one complains about them.

A Salon reader wrote in to Joe Conason sketching out, fairly neatly, the not-totally-implausible scenario that people are worried about:

"Once you have a futures market, you have derivative instruments and people selling them and speculating on them ... Scenario: Some rich clown doesn't like Tony Blair -- so he puts $1 million on Blair getting offed in six months. After three months, he doubles [the bet]. People notice and jump on the bandwagon. Pretty soon, people are blowing millions on the idea that Blair's dead meat.

"When it appears that it isn't going to happen because the seed money was [bet] by someone who had no intention of offing Blair -- but now there are millions riding on it -- some asshole is going to figure: 'Hey, it's [been] five months, and I don't see or hear any movement on the Blair thing -- I'm going to lose my shirt!'

"So, he hires some sleazy hit man to perforate Tony. Not even a terrorist -- but someone doing the work for the terrorists at the behest of the logic of a market-speculation instrument ... Now the original options were placed for peanuts, so the originator gets filthy rich, and he never had anything to do with Blair's death.

"And all these people who invested early in derivatives based on the future options get rich. Their investment forced an assassination. It's like these [Pentagon] people never heard of Heisenberg ... That was the evil of this whole thing."

I'm sure it's not rigorous enough to stand the test of the Truth Cop, but I'm not sure it's so wildly off the mark that it makes the Admiral's idea an inherently worthy one.

FYI, if you visit today, you can still get a subscription to Salon at the old $30 rate. A great value, no matter what size the flag on your S.U.V.

Didn't get to read all your articles, Jimps, but I will if I can later. [Though, really, anyone who has played as much Rotisserie League Baseball as you has to admit: you were looking forward to this.]

In the meantime, J & C, I'm unconvinced that any idea with a "yuck factor" needs to be grandfathered in, based solely on its YF. Some ideas are just bad. (That is a Universal Truth, by the way, unchallengeable and immutable.)

Seriously, though, this isn't the kind of creative, information-generating concept I want my DARPA working on. This was about money, after all. And there are a lot of other ideas that could be getting the support of the best minds of this generation, like all those faulty, flawed security policies you mention, Ceb. (And do any of these guys really have interest in "credibility"? Not many, that I've seen.) Poindexter is veering so dark, he's going to change the meaning of the word "poindexter."

[more]

Jim, I totally agree. I have to admit that my first response when I heard the idea was not "Ew, sick!" but "Hmm, interesting" and based on the commentary I read I was starting think that I myself was sick for not signing the cross at the mention of the concept.

Having read more from both sides on the concept and its shortfallings, I'm not sure that it really is a good idea (at least as proposed), but I can't see what's wrong with exploring it in more depth rather than rejecting it out of hand.

I suspect one's gut level reaction to the concept depends on whether one sees futures markets primarily in terms of a 'game' or 'contest' in which there are winners and losers, or primarily in terms of tools for bringing out information. I tend to do the latter.

One criticism that struck me as a little naive was that this was unlike other markets in that it would trade on people's potential future suffering. Actually, the reality behind a lot of commodity markets is that when you make a killing on your corn futures contract, some small farmer may have just gone out of business because the weather was lousy this year. Similarly, if you don't think that crude oil prices have anything to do with deaths in Iraq, you're deceiving yourself.

I also wonder about the criticism that terrorists could 'game' such a market by buying contracts on a terror possibility and then ensuring that the contracts 'pay off'. Why not just prevent terrorists from participating in the market? I guess what I mean is, why couldn't you have modified the program so that only specific intelligence analysts from around the world could participate. The payoff wouldn't have been money, but credibility, the participants would have been informed, and the ability of terrorists to exploit the market would have been minimized. And maybe the improved information provided by such a market would have helped us allocate our money against terror attacks intelligently (instead of, for example, targeting child predators), improve our ludicrously vague alert system, and actually save some lives by preventing a future attack or two. What's sick about that?

But seriously, how is this any different from electoral prediction markets? Those seem to work pretty well. I'm not even sure it would have been a good idea to restrict the market to just "experts." That would be like restricting the stock market to only analysts.

We'd have this debate often in business school -- are markets truly the best predictor? If you can fix the imperfections in information asymmetry (insider trading, etc.), does the market really represent the future value of a company? I myself was always skeptical, having read Extraordinary Popular Delusions and the Madness of Crowds, which I'd highly recommend to anyone thinking of investing in tulip futures.

What I'm really waiting for, though, is the next reality show that has a futures market built in to the system. Care to bet on who'll get voted off the island?

And speaking of fantasy markets, y'all think I should list myself on BlogShares?

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