Wednesday, July 30, 2003

TERRORISM FUTURES MARKETS

I'm not going to spend a lot of time on this topic as it is only tangentially related to our focus here.

But just a word or two.

It occurs to me that very, very few people get up in the morning and set as their day's goal "to do something completely and ourtrageously stupid."

Yet, if you listen to the knee jerk reactions to the Terrorism Futures Market idea by the Defense Advanced Research Projects Agency (DARPA) you might be tempted to believe that someone at DARPA did just that.

Well, they didn't. In fact, if one takes the time to study the proposal one finds this to be an astonishingly refreshing example of "out of the box thinking" by the defense establishment.

Too bad the knee jerks killed it before even entering a debate (or studying the proposal for crying out loud).

Read about the idea here and here. And see what we missed.

In my view it beats the hell outta "Red, Orange, Amber, Yellow, Green".
Critics of these prediction markets, however, are simply attacking something they don't understand: Such markets have a good track record, could help tremendously in protecting the nation from terror, and pose no moral quandaries that Americans don't already grapple with.

To begin with, there's a good reason to think that idea futures would work pretty well when it comes to predicting terrorist attacks. Consider the following existing prediction markets:

The play-money Hollywood Stock Exchange (run by bond-trading firm Cantor-Fitzgerald) is much more accurate than movie studio's own models in predicting movie's box office grosses and stars' career trajectories.

The now defunct play-money Foresight Exchange accurately predicted that the Y2K computer glitch wouldn't be a big deal as early as 1997.

The Iowa Electronic Markets, which take real-money bets on political candidates, frequently outperform polls when it comes to predicting election outcomes. Several months before the 2000 elections, even as Al Gore showed a significant lead in the polls, his stock and Bush's traded at the same levels in the markets.

No comments: