SHOW STREET SWEEP 0300 PM Eastern Standard Time

                             July 29, 2003 Tuesday

HEADLINE Pentagon Scraps Terror Futures Trading Market, CNNfn

GUESTS Lisa Sylvester

BYLINE Christine Romans


   CHRISTINE ROMANS, CNNfn ANCHOR, STREET SWEEP Futures markets can help
predict anything from the direction of interest rates and the price of oil to
election. The Pentagon has plans to set up a futures market that could help
predict assassinations or terrorist attacks, but that program was dropped this
morning. Lisa Sylvester joins me from Washington to explain all this. Hi, Lisa.

   LISA SYLVESTER Hi there, Christine. You know Pentagon officials were quick
to rethink this proposed futures trading market. Investors would have been able
to sign up starting this Friday online. It was called the policy analysis
market. The Pentagon was hoping savvy investors would bet on anything from where
the next terrorist attack would happen, the next political assassination,
political coup, or even the number of U.S. soldiers that would be killed in
Iraq. This was a project conceived by the Pentagon's Defense Advanced Research
Projects Agency or DARPA. That office is run by Admiral John Poindexter,
President Ronald Regan's national security advisor and the key figure in the
Iran contra scandal in the 1980s.

   Now DARPA has had to defend another controversial program called that was
originally called Total Information Awareness. It was a sweeping electronic
surveillance plan that would allow the government to tap into computer data
bases to collect personal information, anything from medical records, credit
card statements, on just about anyone. But when lawmakers on Capitol Hill heard
about this latest DARPA project, they were flabbergasted.

   (BEGIN VIDEOCLIP)

   SEN. TOM DASCHLE, (D), MINORITY LEADER For the life of me, I can't believe
that anybody would seriously propose that we trade in death. That we set up a
futures market on when, as the Web site proposed, the King of Jordan could be
overthrown, when a leader would be assassinated, when a terrorist attack would
occur. Most traders try to influence their investments. How long would it be
before you saw traders investing in a way that would bring about the desired
result?

   (END VIDEOCLIP)

   SYLVESTER But talking to economists today, they say the idea is not that
farfetched based on economic theory, called the efficient market hypothesis. In
a nut shell markets are known to be the most efficient way to pulling aggregate
information together. So if you want to know a given outcome, let the markets
decide.

   (BEGIN VIDEOCLIP)

   ROBIN HANSON, GEORGE MASON UNIVERSITY It head to head comparisons, between
this institution and alternatives markets have consistently beat the
alternatives at aggregating information.  That doesn't mean we won't ever find
something that works better. But in comparison to the National Weather Service
forecast, orange juice futures have beat it, the Iowa electronic markets have
beat the national opinion polls. Within HP (Company Hewlett-Packard Company ;
Ticker HPQ; URL http//www.hp.com/) they did a market predicts printer sales,
and the official sales forecast inside the company was beaten by the market
forecast within the company. Horse race handicappers are beat by the horse race
betting markets. Oscar people try to predict the Oscars are beat by the betting
markets predicting the Oscars. In the comparisons we've seen the markets have
beat the alternative institutions.

   (END VIDEOCLIP)

   SYLVESTER But that program is now dead. It might have made sense to the
world of economics, but the thought of betting on how many soldiers would be
killed, just a little too much to stomach on Capitol Hill. Christine?

   ROMANS The Dmocrats really came out swinging on this, didn't they?

   SYLVESTER They certainly did. I mean this was something that they picked up
on earlier in the day and there were a number of news conferences, Christine,
everybody latching onto this issue. It didn't take long for the Pentagon to pull
back on this one.

   ROMANS From just a purely academic point of view a lot of people who are
students of economics, as you pointed out and market theory say that, you know,
if the Pentagon can't find a better way to, you know, really get good
probabilities of things that are happening, you know, why not a little bit of
academic discovery. But it's not just academics.  This was going to be something
that was going to be live online People would be able to actually put real money
on, right?

   SYLVESTER It was a very sensitive issue. Again, if you think about this, and
you talk about this in a classroom setting, it might make some perfect sense. I
mean, they do this at the University of Iowa, predicting presidential races and
they've had a lot of success there. But in the course of politics, this did not
go over very well.

   ROMANS Yes. That Iowa market is real money, and it is registered with the
FCC. Very interesting. OK. Thank you so much, Lisa Sylvester.

   SYLVESTER All right, Christine.