Terrorism Market

terrorism-market

Dumb agent theory

The Policy Analysis Market (PAM), part of the FutureMAP project, was a proposed futures exchange developed by the United States’ Defense Advanced Research Projects Agency (DARPA) and based on an idea first proposed by Net Exchange, a San Diego research firm specializing in the development of online prediction markets. PAM was to be ‘a market in the future of the Middle East,’ and would have allowed trading of futures contracts based on possible political developments in several Middle Eastern countries.

The theory behind such a market is that the monetary value of a futures contract on an event reflects the probability that that event will actually occur, since a market’s actors rationally bid a contract either up or down based on reliable information. One of the models for PAM was a political futures market run by the University of Iowa, which had predicted U.S. election outcomes more accurately than either opinion polls or political pundits. PAM was also inspired by the work of George Mason University economist Robin Hanson.

However, Senators Byron L. Dorgan (D-ND) and Ron Wyden (D-OR) claimed that PAM would allow trading in such events as coups d’état, assassinations, and terrorist attacks, due to such events appearing on interface pictures on the project website. They denounced the idea, with Wyden stating, ‘The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it’s grotesque,’ while Dorgan called it ‘useless, offensive and unbelievably stupid.’

Almost immediately afterwards, the Pentagon announced the cancellation of PAM, and by the end of the week John Poindexter, head of the DARPA unit responsible for developing it, had offered his resignation; the PAM had first been proposed and funded in 2001, and Poindexter joined DARPA in 2002. Robin Hanson writes that Poindexter ‘actually had little involvement with PAM.’ CNN reported the program would be relaunched by the private firm, Net Exchange, which helped create it, but that the newer version ‘will not include any securities based on forecasts of violent events such as assassinations or terror attacks.’

In 2007, ‘Popular Science’ launched a similar program, known as the ‘Popsci Predictions Exchange.’ Another project was the ‘American Action Market’ announced by Tad Hirsh of the MIT Media Lab in 2003, which would permit for-profit betting on major events. There are now commercial policy analysis markets, such as Intrade, which offers futures on events such as the capture of Osama bin Laden, the U.S. Presidential Election, and the bombing of Iran.

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