Washingtonpost.com July 31, 2003 Thursday 04:00 PM SECTION: LIVEONLINE LENGTH: 2218 words HEADLINE: Editorial Focus: Devastation of a Terrorism Futures Market? SOURCE: washingtonpost.com BYLINE: Professor of Public Management, Harvard University's John F. Kennedy School of Government HIGHLIGHT: Steve Kelman, of Harvard University's Kennedy School of Government, discussed the his piece on the flop of the terrorism futures market. BODY: Developing a program to improve intelligence and prevent terrorism is high on the president's agenda. The Pentagon, however, recently rejected a plan that seemingly would have aided the prediction of terrorist attacks. Are there better alternatives to the scrapped plan for a terrorism futures market? Steve Kelman, of Harvard University's Kennedy School of Government, was online on Thursday, July 31 at 4 ET to discuss the his piece ( http://www.washingtonpost.com/wp-dyn/articles/A5694-2003Jul30.html Stifling the Civil Service) on the flop of the terrorism futures market. Editor's Note: washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. ________________________________________________ washingtonpost.com: Welcome to Editorial's Live Online with Steve Kelman. ________________________________________________ Owings Mills, Md.: Don't you think you missed the point? Yes, the civil servants in DARPA did what they were paid to do, and no they should not be punished for doing it, However I haven't heard of anyone wishing to punish any member of the civil service. Yes, the idea may have technical or academic merit. Politically, having the government run such an operation is not "probably a bad idea" it's an horrendous idea. There are staff whose job it is to screen these ideas and evaluate their worthiness, especially in a political context. They are high level political apointees who manage DARPA, not members of the civil service. They did a terrible job. This includes Admiral Poindexter. There are at least two strikes for him. Also, Mr. Wolfowitz doesn't look very impressive when he has to find out about the existance of a program already funded and about to go into operation in a week, by reading about it in the paper! Neither of these two would be classified as in civil service system. I'm sure there are others and we have a right to expect better performance from them. Steve Kelman: A few things. First, a number of Senators have called for the people who developed this idea -- who are civil servants -- to be disciplined or fired. Second, I just don't agree that the idea itself is "horrendous." It may on balance be a bad idea, but many thoughtful people actually think it's an excellent idea. (See the column by Prof. Hal Varian of Berkeley in the business section of today's New York Times.) Third, in DARPA's big budget, you don't I don't think want the top political leadership (certainly at the Wolfowitz level) to be involved in vetting ideas at this level of detail -- in this case, DARPA was just considering the idea, they hadn't even done it yet. ________________________________________________ Bethesda, Md.: How would such a market really be able to predict terrorist attacks -- ie why would the market (and who exactly are we talking about?) know any better about when to expect an attack or have any insider info beyond just a guess? Thank you Steve Kelman: Good question. The answer is some version of "two heads are better than one." We have seen in many other contexts that the average judgment of lots of people, with their own money at stake, is often better than the individual judgment of one person. It has been noted, for example, that prices in the oil futures market are an excellent predictor of political unrest that would have an impact on oil prices. ________________________________________________ Harrisburg, Pa.: I know a terrorist research unit at the University of Pennsylvania, which had correctly predicted the World Trade Center, has made predictions on likely sites for terrorist attacks. Are predictions like this useful or not? Steve Kelman: If they are predictions by experts, they certainly should be taken seriously, though nobody knows the future with certainty. The idea behind a "futures" market is that it pools together the predictions of lots of different experts to get an average -- sort of like the "consensus economic forecasts" that places like Business Week often put together from the forecasts of lots of experts. ________________________________________________ Los Angeles, Calif.: Prof. Kelman, In response to the last line of your op-ed, I wonder if perhaps the 749,000 civilian employees at DOD are much more concerned and chilled by the prospect of having about their futures when they lose their civil service protections and are controlled only by the Secretary of DOD. I was also going to ask if Poindexter applied as a civil servant or was appointed to DARPA, but I see from AP that he just resigned. Steve Kelman: Well, I hope (and assume) that most civilian employees of DoD are committed to their mission and not just to personal job protections. Without getting into a lengthy discussion of the proposed civil service changes DoD has proposed (I don't believe they include pension changes, to my knowledge), I think many of them -- without endorsing every one -- will contribute to a more effective Defense Department that DoD employees can be even more proud to be a part of. ________________________________________________ Washington, D.C.: How much funding had the Pentagon given this program before it was scrapped? Steve Kelman: I don't know for sure, unfortunately. My understanding -- though I could be wrong -- is that this idea was still in the planning stages. I am pretty sure it was never actually implemented, or even definitely scheduled to be implemented, but I could be wrong. ________________________________________________ Washington, D.C.: Does a program of this nature suggest failure of the CIA? Was this a last resort attempt to boost intelligence, or merely experimental? Steve Kelman: I think it would have been a supplement to intelligence -- an additional source of information. ________________________________________________ Ithaca, N.Y.: What about the argument that this was a project left out of DARPA's procurement budget? I had heard (on NPR I believe) a Senator on the committee complain about that - regardless of the efficacy and appropriateness of the idea, should DARPA "go live" on a project never approved by the appropriating authority in Congress? Steve Kelman: I don't know enough about the details of the appropriations here. I assume that DARPA is not appropriated, nor should it be, on a project-by-project basis, but by line-item areas. DARPA does a stupendous number of projects. Does anybody (including the appropriators themselves) really want the appropriators to be a review board for every single DARPA project? ________________________________________________ Arlington, Va.: I think the "Terrorism Futures" idea is CRAZY. And that's not a bad thing. It's going to take unconventional thinking to beat these guys. So what if it makes people uncomfortable? And do we really think we can give terrorists ideas for targets they haven't thought of? No way. They're way ahead of us in the planning dept. We're playing catch up. We have to think like them and that's something this project -might- have helped accomplish. I think it's a shame it wasn't given the chance to succeed. Steve Kelman: Thanks for your thought here. ________________________________________________ Georgetown, Washington, D.C.: If we would assume that people who participate in such a market would or should have a good reason for predicting attacks as they do (which in this case would mean they have access to info about a terrorist group or are part of one) why would we have any reason to believe them about the predictions they make? Would the "paper trail" really help us find them if that in fact happen? Was that rumor about bin Laden getting rich off selling airline stock before 9/11 true or just urban legend? Steve Kelman: This is a complicated question, though a simple (but not completely satisfying answer) would be that the question of whether this would/should be a private market open only to registered experts or a public market that, in theory, even terrorists could participate in, would have to be determined in the context of what would produce the best information. It is hard to imagine that winning or losing a few hundred dollars either way would change the behavior of terrorists -- say, to make them more anxious to commit terrorism so they could profit on this futures market from their terrorism. Have no idea about the bin Laden rumors, but, even here, hard to imagine that anywhere on the list of reasons why bin Laden behaves as he does is to make money on insider trading. ________________________________________________ Los Angeles, Calif.: I didn't mention pensions, nor do I wish to discuss all the ramifications of DOD reorganization, as hiring and firing should be made more efficient, but Rumsfeld wanted totally to control it. I wouldn't want to be a DOD civil servant who made him angry. Also it seems the experts always are professors with tenure who have the most job security along with federal judges. Steve Kelman: I just don't believe that the Defense Dept. would, or has any intention of, developing a system that allows career people to be fired at the whim of the Secretary of Defense. I think we both agree that the current system is dysfunctional in many ways. ________________________________________________ Washington, D.C.: What are other alternatives for intelligence research/ means to prevent terrorist attacks? Steve Kelman: A whole bunch. This futures market would have been one tool among many. ________________________________________________ Washington, D.C.: Do you believe that the futures market may have worked had it been operated indep. of the government? Steve Kelman: Interesting question. Of course, it still might be organized independently of the government. There are definite issues with government sponsorship of a system where people speculate, for example, on the likelihood of assassinations (though I have heard that this was not actually the intent of the system DARPA was considering)that would be less relevant if the system were run outside the government. ________________________________________________ Washington, D.C.: Would the program have been available to investors world-wide? Steve Kelman: I have no idea. I think that would have been one of the design issues they would have had to face -- do you allow anyone who wants to, to participate (as in a financial market) or not. ________________________________________________ Princeton, N.J.: Do you buy Wolfowitz's claims of denial of the program especially when he was a math major at Columbia where he specialized in game theory ? Also, when he studied under Al Wohlstetter in Chicago. Seems like this is exactly his cup of tea. Steve Kelman: Would definitely be exactly his cup of tea. But I find it totally plausible that this activity going on deep in the bowels of DARPA was way way below his radar screen. ________________________________________________ Rockville, Md.: I heard that this futures market on terrorism will be open only to a "selected few" of 1000 or so operating in secrecy. Also, I read about an identical scheme (predicting bombings, terrorist attacks and assassinations) operated in Israel, producing the outraged of Israelis. What would prevent those secret participants who invest handsome amounts on an assassination for example, to carry out such an assassination to achieve large profits? Also, what about if a similar scheme sprung in the Middle East about murdering Americans? The thought of it is beyond horrific, and those who fail to see its immoral application need to re-examine their moral values. I guess it is a sign of the times. Steve Kelman: If you limited this to small amounts of money at stake, or limited participation to (say) academic experts, you could almost certainly deal with these issues. We have a market in oil futures though one could make a plausible argument that it creates an incentive for people to blow up oil refineries -- BTW, no evidence that it has ever produced this effect in reality. I like to think that I have a well-developed ethical sensitivity, but I don't think this idea even comes close to being so prima facie ethically repugnant (once it is properly understood) to justify the cheap shots that have taken place -- particularly the calls for disciplining/firing civil servants who thought up experimenting with this approach. ________________________________________________ Washington, D.C.: What did you make of the Zitzewitz piece that ran next to yours? He was online today as well. Steve Kelman: You know, I haven't seen it. The Post isn't available till the next day in Boston, and I didn't know it was on the web. ________________________________________________ Washington, D.C.: Could you expand on a few of the alternatives to the program? Steve Kelman: The alternative (or complement, better to say) is the intelligence/analysis system we have now. This was seen as a possible additional source of information. ________________________________________________ washingtonpost.com: This concludes Live Online with Steve Kelman. Thank you for joining us.