The use of futures markets, while still relatively sparse, represents an excellent method
to help determine the best approach to key policy issues, and to
predict certain policy outcomes. Instead of merely relying on a small
coterie of individuals to analyze and predict outcomes in the policy
world, futures markets make use of a wide variety of opinions,
predictions and analyses from diverse sources to help determine policy
on particular issues, and to predict outcomes.
Thus, just to cite just one example, we have the Iowa Electronics Market
to help us predict election outcomes by encouraging participants in the
market via the Internet. The participants then help predict an
electoral outcome by bringing the mechanism of the futures market to
electoral prediction and analysis, and by encouraging traders to
correctly predict the results of an election by offering a financial
reward as an incentive. The Electronics Market has a good reputation at predicting electoral outcomes,
outperforming polls in the majority of cases. Needless to say, the
concept of using futures markets for predictive and analytical purposes
has spread to other areas as well.
One such attempt to utilize futures markets came about when the Defense Advanced Research Projects Agency (DARPA)
sought to use the model of futures markets in the war on terrorism. The
market would make use of online speculators betting on whether certain
acts of terrorism, coups, and other political developments would occur,
and where or when they may happen. But because certain public officials
found the idea of betting on, say, the assassination of American
political officials "repugnant," the program was terminated.
Some
of the concerns surrounding the termination -- such as whether
terrorists may seek to mislead the market by not betting on outcomes
they know will actually happen -- are reasonable. But in the long run,
as Ronald Bailey points out,
such efforts are fruitless since futures markets are already filled
with actors trying to mislead the market -- actors who end up losing
money to those who use better information to make more accurate
predictions.
There is also the concern that terrorists may make a profit by betting on acts of violence that may happen
and are being planned. However, Bailey reminds us that in that case,
terrorists end up tipping us off to their plans -- thus helping us to
keep those plans from coming to fruition. In the event that certain
transactions and wagers look especially suspicious, they can of course
be traced and tracked, perhaps helping the United States capture
terrorists in the process.
The
other concerns -- that betting on terrorist outcomes and violent
political occurrences is somehow "repugnant" -- are simply absurd.
Terrorism itself is repugnant -- the futures market is merely an
enhanced intelligence gathering operation that helps pattern and stop
potential terrorist operations by using a model more effective than
merely relying on the traditional group of intelligence analysts,
pundits and experts to engage in analysis and prediction. One of the
objections to the DARPA project was that potential terrorist threats
"should be met with intelligence gathering of the highest quality --
not by putting the question to individuals betting on an Internet Web
site," in the words of Senators Byron Dorgan and Ron Wyden. However,
the Senators should have noted the accuracy of futures markets in other
areas before making such arrogant and dismissive statements. Far from
being a frivolous project -- and if the success of other futures
markets is any guide -- the terrorism futures market would have enhanced intelligence gathering, not diminished it.
All of which is why it is good to see that the terrorism futures market has made a return.
The TerrorXchange will help strengthen intelligence gathering and the
implementation of preventive counterterrorist measures through the use
of the futures market model. It provides access to breaking national and international news and the ability to comment on the news, its stock listing runs the gamut of potential political scenarios, and it even helps people prepare for any terrorist attacks.
It is a useful supplement to official counterterrorist and intelligence
measures, and will hopefully be studied and made use of.
Hopefully
as well, public officials will be further educated and, in the future,
more open to the kind of out-of-the-box thinking that helped conceive
the idea of a futures market to analyze, predict and ultimately, deter
terrorist threats. Almost everyone agrees in principle that the war on
terrorism is "a different kind of war." Unfortunately, not everyone
seems willing to actually treat the war on terrorism as the
asymmetrical struggle that it is. That needs to change. The terrorists
have no illusions about the kind of war they are fighting against us.
Neither should we. Only by pursuing unorthodox but effective
counterterrorist measures, only by remaining at the forefront of
innovation will the United States put the forces of international
terrorism to rout. We can bring a great deal of intellectual capital to
bear in fighting terrorism. There is no need for us to refrain from
doing so.
Pejman Yousefzadeh recently wrote fro TCS about the blogosphere growing up.
