The San Diego Union-Tribune

                            August 31, 2003, Sunday

SECTION ZONE;Pg. N-4

LENGTH 527 words

HEADLINE CHARLES POLK, president, Net Exchange

BYLINE Conor Dougherty

BODY
 Charles Polk is president of Net Exchange, a technology company in Carmel
Valley that builds markets and auctions as a means of solving commercial
problems.  The company was founded in San Diego in 1994 but flew under the radar
until this year, when a market the company built for the Pentagon -- called the
Policy Analysis Market -- became headline news when it was discovered it would
allow traders to bet on events such as political assassinations and missile
attacks.  The idea was to use auctions to gather information about Middle East
stability by getting people from all over the world to communicate with each
other via an online betting pool.  Polk received his doctorate from California
Institute of Technology in 1993 before moving to San Diego to head up Net
Exchange.

   How has it been at Net Exchange since the Policy Analysis Market was all over
the front page?

   We have been testing the hypothesis that all publicity is good, and as best
we can tell, the hypothesis is true.  We are very busy, and I'll leave it at
that.

   Can you give me an example of another type of market Net Exchange has
developed?

   We have assisted major shippers, such as Sears, in arranging long-term
contracts for their trucking service requirements.  What we pioneered was a
contract auction of long-term contracts, where truckers were allowed to offer
shippers a package of routes rather than having to bid single routes.  That way,
they're less subject to receiving routes that leave them in the middle of
nowhere.  It worked very well and tended to save the shippers between 10 and 15
percent.

   Do you have any other applications for the technology you developed for the
Policy Analysis Market?

   Yes. One is an internal market for firms that need to choose among a large
set of research and development projects, and the classic example is a
pharmaceutical company.  The basic problem they face is that they have several
hundred compounds that they put through research and development, knowing full
well that in a few years they need to have it down to 10. Each of those projects
cost a fair amount of money, so the sooner they can cull out the ones that aren
't going to pay off for them, the better off they are.

   How would that market work?

   The issue here is how do you get information from those closest to the
research efforts up to the decision makers.  There are all sorts of ways to do
this, say committee meetings.  But one possible application of the technology
that was at the basis of the Policy Analysis Market is an internal futures
market, where people who are doing the work can express their opinions on a
fairly even playing field.  You might have someone who knows a lot about what
compound is best but doesn't have the personality to let everyone in the room
know they're right.  But if they can place a wager, they may be able to get that
information up to the decision makers and also make some money.

   Why is betting such an efficient communicator?

   Have you ever played poker?  If you have someone at risk for being wrong and
has something to gain if they're right, they will spend more time preparing
before they make a decision.


   GRAPHIC 1 PIC; John Gastaldo / Union-Tribune; (Charles Polk)

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