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Save a link to this article and return to it at www.savethis.comSave a link to this article and return to it at www.savethis.com  Email a link to this articleEmail a link to this article  Printer-friendly version of this articlePrinter-friendly version of this article  View a list of the most popular articles on our siteView a list of the most popular articles on our site  

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 outrage.

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 project.

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.

"Every 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.


Save a link to this article and return to it at www.savethis.comSave a link to this article and return to it at www.savethis.com  Email a link to this articleEmail a link to this article  Printer-friendly version of this articlePrinter-friendly version of this article  View a list of the most popular articles on our siteView a list of the most popular articles on our site  



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