Defense Dept. project aims to let ‘investors’ bet on events
By John W. Schoen
MSNBC
July 28 — The conventional wisdom holds that financial markets combine the collective wisdom of the millions of investors who participate in them. So what if you could use that market force to help predict political upheaval in volatile places like the Middle East? That’s exactly what a Defense Department project is trying to do — despite Senate critics who say the effort is nothing more than state-sponsored “gambling on terrorism.”
THE PROJECT IS modeled on “futures” exchanges like the Iowa Electronic Markets, a popular Web-based market that lets political junkies place bets — with real money — on the outcome of political elections.
The Policy Analysis Market, which is set to begin signing up “investors” on Friday, is designed to let Middle East experts place bets on political and economic events in the Middle East, according to Charles Polk, president of Net Exchange, a small San Diego, Calif. company hired by the Pentagon’s Defense Advanced Research Projects Agency, or DARPA, to set up the market.
“This isn’t really a terrorism market,” he said. “What we’re trying to do is look forward a year into the future and try to glean some insight into political and economic and military currents in the Middle East.
During the initial test phase, the site will be limited to 100 “traders,” chosen from Middle East experts at universities and think tanks, who will get $100 each to buy and sell futures contracts based on events in eight Middle East countries. The online trading system could eventually be scaled up to include 10,000 traders.
Possible “contracts” could include questions like the overthrow of the king of Jordan or the assassination of key figures like Yasir Arafat. These contracts would deal with events in each country related to five major categories: military preparedness, civil stability, economic health, U.S. military involvement and U.S. economic investment, said Polk.
The market is also designed to allow trading in “derivatives” and complex hedging strategies — linking, say, renewed economic growth in Israel to the prospects of approval of Palestinian statehood.
By placing thousands of individual bets, market participants would shape forecasts about future events. The value of the contracts would fluctuate based on market participants’ beliefs about the likelihood of specific events taking place — moving higher if they appeared likely and lower if unlikely. Contracts will expire quarterly and extend a year and a half into the future. Each contract would be fully valued at $1 — the payoff for an accurate prediction.
“You can go into the (Policy Analysis Market) and ask it for that derivative: ‘If U.S. involvement here were to increase, please give me a quote on Syrian civil stability,’” said Polk. “You just ask for a quote.”
But a pair of U.S. Senators doesn’t think this is all such a great idea. On Thursday, Sen. Ron Wyden (D-Ore.) and Sen. Byron Dorgan (D-N.D.) called on the Defense Department to halt the project, saying the “terror-wagering scheme” was a waste of taxpayer dollars — especially after a recent report on Sept. 11 citing breakdowns in conventional intelligence gathering.
“We don’t need a lot of fictional scenarios,” said Wyden in a telephone interview. “We’re not dealing with communication and follow-through in the real world; we think that’s what ought to be the focus, rather than trying to chase down these mysterious scenarios with taxpayers dollars.”
if your in the government, does it count as insider trading? your causing a lot of the stuff.
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Enforcer Talen wrote:if your in the government, does it count as insider trading? your causing a lot of the stuff.
Nah. But if you're a terrorist...
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Why? It's just an experiment in harnessing the expertise of Middle East specilaists. Why NOT apply a market model to predicting political developments? It's not like it could do much worse than what we're doing now.
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Pentagon Cancels Terrorism Betting Plan
Jul 29, 7:06 PM (ET)
By KEN GUGGENHEIM
WASHINGTON (AP) - Under fire from all sides, the Pentagon on Tuesday dropped plans for a futures market that would have allowed traders to profit from accurate predictions on terrorism, assassinations and other events in the Middle East.
Republicans said they knew nothing about the program and would never have approved it. They called the head of the Pentagon agency overseeing the project to Capitol Hill to answer questions.
Democrats demanded details of any related Pentagon programs, an apology from the Bush administration and the firing of those responsible for the market.
"I think those who thought it up ought not only close down the program. They ought not be on the public payroll any longer," said Sen. Byron Dorgan, D-N.D, at a news conference....
(the article continues on for some length)
Although the idea of betting of terror attacks, betting on when someone will die, seems rather macabre to me, the idea of using a large group of analysts to predict future events seems rather ingenius to me.
At a hearing where senators criticized the program, Deputy Defense Secretary Paul Wolfowitz said, "I share your shock at this kind of program." But he also defended the Pentagon office that came up with the project, saying "it is brilliantly imaginative in places where we want them to be imaginative."
Yeah, what he said.
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Darn I was hopping to be able to be able to short sell any UVF or IRA funds over the next few years, besides Baader/Mienhoff should be up for a steal...
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As crackpot as it is, I'd rather see 8 million taxpayer dollars go to it then most other things the government spends money on.
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