Tuesday, December 23, 2003
Copyright © Las Vegas Review-Journal
Interest in wagering on events perseveres
By TONY BATT
STEPHENS WASHINGTON BUREAU
Robin Hanson is an architect of a Web site the Pentagon considered using to gauge Middle East developments.
Photo by TONY BATT/ STEPHENS WASHINGTON BUREAU
WASHINGTON -- Hoping
to head off terrorist attacks, the Pentagon last summer planned to set
up a Web site to take bets on future events in Iraq and elsewhere in
the Middle East.
If you wanted to bet Palestinian leader Yasser Arafat would be assassinated, you could have done it on the site.
When Congress got wind of this, Sens. Byron Dorgan, D-N.D., and Ron
Wyden, D-Ore., promptly scheduled a news conference to vent their
The next day the Pentagon abandoned the project.
But the concept of using bets online to collect information is not going away.
"There are a bunch of companies interested in using information markets
to forecast their future and advise their decisions," said Robin
Hanson, one of the chief architects of the Pentagon's ill-fated
An information market works just like a betting market, Hanson said.
Both are designed to collect information through financial speculation.
"Information markets are set up as this neutral forum within which
different people who claim they know things are asked to put their
money where their mouth is," Hanson said.
For example, anyone can play the commodities markets and bet on orange juice futures. But very few people do.
"The people who choose to bet on orange juice futures actually think
they know better about orange juice futures," said Hanson, an assistant
professor of economics at George Mason University in Fairfax, Va.
The same principle would have applied to the Pentagon Web site.
Middle East experts and even terrorists could have placed bets on
propositions such as whether civil unrest in Iraq will increase if U.S.
troops remain there beyond 2004.
In turn, U.S. policy-makers could have checked the Web site to see if
there was a consensus among the bettors. They would have been just like
Wall Street brokers scanning the business page to see how financial
markets reacted to the announcement of a merger between two companies.
But the demise of the Pentagon project showed online betting markets are not politically palatable.
Even in gambling-friendly Nevada, online betting markets are not
welcome. Hanson discovered this shortly after beginning his research on
information markets in 1989.
"When I talked to people in the gambling industry in Nevada, I got this
clear message that there was a fear that if you can bet on something
other than sports, there might be a scandal -- like somebody throwing
the Oscars," Hanson said. "Then betting on sports, which they make
their big money off of, also might be shut down."
Hanson believes it is only a matter of time before online betting
markets become just as legitimate as other financial markets.
"All the familiar financial markets we know of were once prohibited
because they were categorized as gambling," Hanson said. "Financial
innovation, in general, is hobbled and slowed because of the general
prohibition against gambling."
Financial markets survived, Hanson said, because the law eventually
carved out exceptions for them. This allowed financial markets to
demonstrate their potential value. Then came regulation, and the
financial markets thrived.
Hanson sees a parallel with Internet gambling, which Congress has unsuccessfully sought to prohibit since 1996.
Congress is expected to try to pass an Internet gambling ban again in
2004 even though the offshore industry shows no signs of slowing down.
Online wagers are projected to reach $4.2 billion this year on more
1,800 offshore Web sites.
time you think about regulating gambling, you have to realize that one
of the costs is that you may preclude or make future financial
innovation more difficult," Hanson said.
Meanwhile, Hanson and the companies interested in information markets
face the same problem as casinos that would like to exploit the
Internet market. They don't know how far they can go without breaking
the law. That means some of the future development of information
markets may have to occur offshore.
Recently, Hanson placed a bet with an Internet gambling site based in Ireland.
"I lost my shirt betting the United States would not capture Saddam Hussein," he said.