Killer futures die a death
Antony Currie. Euromoney. London: Aug 2003. pg. 1

Abstract (Document Summary)

It will go down as one of the most short-lived trading venues ever. It had 
been in development for months, and its owners claim to have spent $600,000 
setting it up. Yet within 24 hours of becoming public knowledge it was 
killed off. Goodbye, and good riddance, to the Policy Analysis Market (PAM). 
The brainchild of the Defense Research Projects agency (Darpa), an arm of 
the US Department of Defense, it aimed to trade futures contracts to enable 
bets on certain events taking place in the Middle East. 


Donald Rumsfeld:

some of the secretary of defence's
subordinates seem uncertain about
their evil adversary's location

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It will go down as one of the most short-lived trading venues ever. It had 
been in development for months, and its owners claim to have spent $600,000 
setting it up. Yet within 24 hours of becoming public knowledge it was 
killed off. 

Goodbye, and good riddance, to the Policy Analysis Market (PAM). The 
brainchild of the Defense Research Projects agency (Darpa), an arm of the US 
Department of Defense, it aimed to trade futures contracts to enable bets on 
certain events taking place in the Middle East. Examples included the 
assassination of Yasir Arafat and the overthrow of Jordan's monarchy. The 
website even floated the idea of a nuclear attack by that evil Middle 
Eastern power North Korea. 

There's nothing new about the concept: the Iowa Electronic Markets have 
operated since 1995. They are best known for their US presidential and 
congressional elections futures contracts. And earlier this year 
Ireland-based TradeSports set up a futures contract on whether and when 
Saddam Hussein might be overthrown. 

Nor is there anything flawed about the premise behind it: that futures 
markets can often be better predictors than so-called experts. The IEM US 
elections contracts, for example, almost always do better than most polls. 

That might not be so transferable to broader political events: could 1,000 
traders, PAM's initial target, or even the 10,000 it wanted within a few 
months, be of any use in predicting the likelihood of Arafat's assassination 
if they were all Americans, or westerners? Futures contracts seem to work 
best when the traders have a direct stake in, and some information about, 
what they're trading. Getting 1,000 employees from the State Department, the 
Pentagon, the CIA, the National Security Agency and the White House to trade 
on which country Bush will invade next - now that might be interesting. 

What was more startling was that a US government agency thought there would 
be no problem setting up political futures contracts betting on possible 
events in an area of the world where the US is often reviled and where 
gambling is a crime. "How stupid can you be?" asks one trader. "Why didn't 
they just do what the CIA would've done: surreptitiously throw $300,000 
TradeSports' way and let them set it up at arm's length from you?" 

And then there's the money. Already $600,000 of taxpayers' money has been 
spent on the website, with another $149,000 due before the year-end. The 
Pentagon had asked for a further $3 million in funding for 2004 and $5 
million for 2005. But PAM's futures contracts were neither complex nor, with 
the 10,000 trader maximum, likely to engender a systems overload. "Three 
half-decent computer geeks can set up an exchange in a garage for $300,000," 
a senior e-commerce specialist told Euromoney in 1999.