In an extraordinary day in Washington on Tuesday, a government-backed futures market aimed at predicting terrorist attacks and other events was both revealed and then cancelled.
The market, which was due to start up on Friday, was condemned as a “market in death and destruction, and not in keeping with our values” by Senator Hilary Rodham Clinton. Following the outcry, the Pentagon cancelled the research project.
However, experts point out that intelligence gathering is frequently a dirty business and that the scheme could potentially have provided a cleaner, and potentially more accurate, way of obtaining valuable information.
The project, called the Policy Assessment Market, aimed to predict events relating to US interests in the Middle East by encouraging anonymous investors to speculate in an online futures market.
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In the market, investors would have bought contracts that pay out if specific events happen. The contracts could have been complex, such the number of terrorist attacks against US citizens by the end of 2003, if US troops are not removed from Saudi Arabia. Other examples given included the assassination of Palestinian leader Yasser Arafat or the overthrow of Jordan’s ruling family.
The value determined by the market for these contracts is then a measure of the likelihood of the events happening. But outraged politicians said the inherent ghoulishness of the plan outweighed any potential benefits. “It is a pie-in-the-sky project that is morally questionable and dubiously useful,” says Carol Guthrie, spokesperson for Oregon senator Ron Wyden, who helped bring PAM to public attention.
Presidential predictions
PAM was the brainchild of the economist Robin Hanson, at George Mason University in Virginia, who teamed up with a small business in California called Net Exchange. The US Government’s Defence Advanced Research Projects Agency (DARPA) awarded $750,000 to Net Exchange to apply Hanson’s technology to events in the Middle East.
Using futures markets to predict future events is not new. US presidential elections have been analysed by the Iowa Electronic Markets (IEM) since 1986. It claims to be twice as accurate as pundits.
The suggested advantage of such markets is that the profit motive efficiently gathers information from a very wide range of sources. Real money is at stake, meaning informed speculators may reveal knowledge they would otherwise keep secret. Also, the prospect of financial loss discourages uninformed speculators. Futures markets have accurately predicted a wide range of events, from Oscar winners to commodity prices.
Family network
The decision to cancel PAM was “pure political” according to one DARPA-funded expert. And Hanson says: “The nature of intelligence is that you are paying people to tell you something unpleasant. But if you want information about such things, I don’t see how [PAM] is morally better or worse than any other way of paying for such information.”
But other observers argue the benefits of PAM were not clear-cut. Thomas Rietz, a director of the IEM, is doubtful speculators would really have provided helpful intelligence. When betting on presidential elections, he says, people can use their network of friends, family and workmates to form an opinion – that would not be the case for terrorist activity.
PAM’s opponents also point out that it might even have allowed terrorists to profit from their own atrocities, or to change the dates of attacks if PAM was making an accurate prediction.
But Joyce Berg, also a director of the IEM, believes PAM would have been worth a try: “I think that we need more ways to gather information. This project was a possible way and the only way to find out if it can work is to test it.”
