Project Seeks Terror Clues in Marts Shane Kite Senior Staff Reporter 1,211 words 17 March 2003 Securities Industry News The Defense Advanced Research Projects Agency (Darpa), the Defense Department's well-known research arm, wants to predict the future using the futures markets, and in doing so guard against terrorist attacks. The project, called FutureMAP, or Futures Markets Applied to Prediction, is based on the long-standing idea that myriad geopolitical events reverberating otherwise unknown in the world can be anticipated by closely monitoring moves made in the financial markets, particularly in the futures sector, because such financial bets typically precipitate or signal other actions or plans. A variant of gaming and network theories, Darpa's turn toward market data to bolster national security stems from the theorem that monetary wagers can signal probability more precisely than a gaggle of human experts can through dialogue or other means. Such tactics have increased as the markets have become more global and connected via the Internet-itself a Darpa invention. "People basically put their money where their mouth is" in searching for consensus on various likelihoods, said Jim Neiers, a program manager at Neoteric Technologies. Darpa has contracted with Neoteric and NetExchange-a San Diego-based vendor that provided much of the technology behind BondConnect, a failed trading system from State Street-to work on FutureMAP through Darpa's Small Business Integrated Research (SBIR) program. Darpa has solicited proposals for smaller studies to complement these efforts, according to Jan Walker, an agency spokeswoman, who described FutureMAP efforts recently to Securities Industry News. Neoteric and NetExchange are researching the markets to come up with ways to more precisely predict, plan for, and-as much as it's possible-preempt future events, whether it's preventing attacks against critical infrastructure or gaining knowledge of a potentially disrupting technology. Futures are a key focus because they're instruments that allow individuals or firms to place forward bets on the probability of movements in the prices of stocks, bonds, commodities, currencies or indexes, whether it's through in-depth analysis or via inside knowledge. The work grew out of political futures research begun in 1988 at the University of Iowa's Tippie College of Business under a highly successful-and ongoing-but little known program called the Iowa Electronic Markets (IEM). IEM board members did not return inquiries about the project. While FutureMAP could allow intelligence analysts and anti-terror experts to more directly use technology to monitor shorts, which are bets or forward contracts that a stock or commodity's price will fall, to ascertain probabilities or clues of potential attacks on infrastructure, a larger goal of the project is to implement "internal idea" futures markets, in which futures-based analytics are used to measure the accuracy of the projections of a group of experts on multiple defense-related topics. Such measures can additionally be used to configure an appropriate, optimally unbiased team of specialists able to make reliable projections in the first place, so as to assure greater accuracy of forecasts. "It's a great way of getting people that are subject matter experts to be able to establish a common understanding of probability of a future event," Neiers said. "Rather than have a dozen subject matter experts gather around and argue and go through something like a Delphi technique or various procedures in trying to get a consensus of hey, when is this thing going to happen,' there are other information communication values existing in the free markets." The FutureMap Web page on Darpa's Web site features a target with predictive tools including the Delphi statistical measure and generic analysis reports displayed as "darts"-each falling well short of the financial markets' method arrow, which is stuck just shy of the bullseye representing greatest probability. "There is a remarkable correlation if you look at price and the probability of an event taking place," Neier said. "As has been illustrated with commodities futures, people can rely on their own independent knowledge to recognize whether the current price is undervalued or overvalued, and consequently they'll trade on that information. Harnessing that particular component of the markets is what we're looking at." Private sector use of the measures have consistently beat traditional forecast methods when predicting the volume of printer sales, for example, according to Robin Hanson, an assistant professor of Economics at George Mason University. Hanson coined the phrase "idea futures" and has written extensively on the topic. Proponents additionally claim that testing using futures allows conclusions to be reached much quicker than by other methods. The theory is based on the inference that money is an overarching motivator. People playing in the markets rarely play to lose, no matter what their motivation-whether they're bent on funding mayhem or trying to help the good guys to better measure the risk of it. The financial markets' predictive or "first responder" nature has garnered some of its support from historical precedent, most recently regarding the government's probe into suspicious trading alleged to have occurred before 9/11. Instead of promoting outlandish conspiracy theories, experts cited an unusual amount of shorting of airplane and brokerage stocks before the attacks as potential market indicators that could have pointed experts toward the possibility of terrorism. The market also reacted to the assassination of John F. Kennedy before the television news media-then in its nascent, less technologically advanced days-could. According to a new book on spotting market bubbles by CNBC financial broadcaster Ron Insana, several Dallas-based brokers who watched the presidential motorcade that day traded on the news of the tragedy before the media was able to disseminate it to the public at large. The illustration provides an example of how certain "networks" of people with knowledge of events can place monetary indicators or reactions into the system or market in which they operate, before others. Also, intelligence analysis often suffers from being highly politicized, even though it's not supposed to be. Experts or sources typically come to the table with their own viewpoints, agendas and personal motivations. According to FutureMAP supporters, market numbers-despite Enron and the rest-do not often lie. The effort provides unique insight to the otherwise uninitiated into how markets, geopolitical intelligence, technology, and making money-primary concerns of both the government and the financial services industry-are inextricably intertwined. The project highlights as well the newly invigorated doctrine of global threat preemption as manifold and far-reaching. Futures were in fact created to more accurately determine true value by creating hedging opportunities against other potentially flawed markets by taking measure of certain information from sources in the know. Just as this describes portfolio management, it illustrates the goal of FutureMAP, which is to improve traditional threat and risk matrices for the military and intelligence communities. While it may seem rather benign, the initiative comes out of Darpa's Information Awareness Office, which is most known for a controversial project called Total Information Awareness, an uber-Big Brother consumer transaction monitoring project for which Congress recently suspended funding. Neiers said TIA and FutureMAP diverge because FutureMAP deals with "numbers, not people." Darpa's Walker did not respond to questions about the projects' differences. Copyright 2003 Thomson Media Inc. All Rights Reserved. (http://www.securitiesindustry.com)