IIRC, most of the US intelligence budget is controlled by the Pentagon (for instance, Army Intel and Navy Intel), not the CIA or NSA. Don’t have a cite right now though.
Wasn’t clear, experimental.
True, I believe the concept of predictor is not the right concept, rather an indicator or aggregator of concerns/interests. In that context I still see it as a powerful too, potentially useful in signaling - but my above post on reflection stands.
Certainly, with projects like this the devil is in the details. Problem is, we’re not going to even see the details, because this got spiked because of a general uproar unrelated to the facts.
That’s what annoyed me most - the reactions in this forum are a good example. The mocking, derisive tone that most opponents took was directed at the general concept. Knee-jerk, thoughtless reactions.
But it’s interesting who the supporters (or at least the people willing to consider the concept) were. Myself, Collounsbury, December, London_Calling… Who’d have thought you’d ever see aggreement between that group? That suggests to me that the real dividing line on this issue is ignorance, and not politics. Those of us who actually understand markets went, “Hmm… Interesting idea.” Those who don’t went, “Waaah!!! Betting on terrorism! Stupid military jerks!”
No, the idea is not brilliant, it is as stupid as it gets and you are missing the point. Hayek explains it very well in his article The Use of Knowledge in Society where he explains that the prices of things in a free market act as a regulator and medium for the transmission of condensed information when this information is spread out among millions of producers, consumers, processors, etc.
But what this crazy scheme was trying to do is predict from the public things about which the public had no knowledge at all like whether there was a plot underway to assasinate Arafat. This information can be gained by the CIA by other means but just doing a survey of millions of people and asking them what they think about this is plain stupid. People know if they need more tin and how much they are willing to pay for it in relation to other things but to ask people who know nothing about the Palestinian situation whether they think Arafat will be assasinated is plain stupid. Why not just go out and do a survey? If any person does have knowledge about any prospects that this will happen the CIA should be getting this information by the traditional means. If there is a plot underway only a handful of people know it and what the rest of the world thinks is irrelevant.
Let us suppose we start a big, world-wide, betting scheme on whether my neighbor will finally get rid of the junked car in his yard. The entire world cannot predict that at all. And by betting on it you have just distorted the situation. If the bets are high enough I will bet a million dollars that the car will be gone in 3 months and then offer the guy half of that to get rid of the car. Bet 50 million dollars that President Bush will not be assasinated before he leaves office and you have just put up an offer of 50 million dollars to anyone who does it. Great idea, huh?
By betting on the price of tin you are just using the information you have which is an infinitesimal part of the entire information which composes the tin market. But a few people betting on the head of Arafat or President Bush they are creating the incentive to have those heads roll or to protect them.
Markets are great for some things but This idea was as stupid as it could possibly be, even coming from the Pentagon. Stupid, stupid, stupid.
Actually the 911 insider trading investigation led not to UBL but to CIA, so the story went down the memory hole.
Well, sailor I have to disagree in part.
One one hand, yes, if we take it at face value as a predictor then I agree that the concept gets a bit dodgey. Above all for one off discrete events as opposed to macro developments.
Rather as I thought of it, it struck me as an interesting aggregator of concerns that could point to overlooked areas of activity or interest - as well as highlight certain kinds of trends.
Now, as I think I mentioned elsewhere - and I think this was likely to have been a feature - the market participants would have needed to have been from an informed subset in re the issues, else we would simply track mass public interest in news items. That doesn’t strike me as particularly interesting per se (well it might be for other purposes).
I think the idea of a direct predictor a a discrete terrorist action is indeed one that would not work. However presuming informed participants with something on the line - I can see some interesting information potenitally cropping up.
However, on the other hand, as my convo with my colleague convinced me (we came up with a disturbingly intriging set of ways we could use this -indirectly- actually - however I am sure many violate a variety of laws) that the potential for blow back was more than I initially considered. I confess to having initially been a bit starrey eyed about it. Still, a delicious concept.
Sheesh, using this “market” as a predictor is about as “accurate” as manipulating statistics. To wit, if there is a “1 in 10,000” chance of a plane crashing on any given day, and one decides to stinger a 747 so that the plane taken in the afternoon is “guaranteed” to be safe…
It’s none deterministic
Roger, that link says nothing. There was suspicious trading activity around 9/11 that anyone with a Bloomberg could have noticed. Anyone with pre-knowledge could have closed out positions in Tokyo, Hong Kong and Europe on 9/12 and laundered the money before any regulator even thought to start investigating. The UAL calls were unusual but one could have easy sold Hang Seng Index calls instead and chances are low that a regulator would even think to check short calls versus long puts, much less a more exotic play.
Overlooked areas? If the intelligence-gathering agencies are overlooking macro information we’ve got a bigger problem than we think.
“informed subset”? You mean you expect the terrorists to come to the pentagon and say “hey, I am willing to bet president Bush will be assasinated”?
That’s exactly my point and that is exactly what the Pentagon said this was for.
Well, that is too general to judge but the examples given by the Pentagon were really stupid.
Well, yes, something to discuss over a few beers is fine. But the idiots at the Pentagon have spent a lot of time and money to come up with this? What the hell were they thinking?
Yeah, totally knee-jerk and thoughtless my reaction.
Let’s face it, december’s MO is “Bush said it, I believe it, that settles it”. As you can see it did not take Coll long to figure out this was a bad idea. If it took him so little time how is it that the Pentagon did not see it?.
So terrorism is a “market”. Care to expand on that? I understand how the tin market works. Now please explain how the “Arafat assasination” market works.
Furthermore, as I have said, betting 50 million dollars that Bush will not be killed is a huge incentive for someone to have him killed. Do you think it is a good idea to provide incentives for assasinations or terrorist acts?
I have a feeling those stars were shaped like $'s. 
I just honestly can’t see what’s to be gained from this idea even in theory with a ton of oversight measures. Doesn’t the intel community already correspond with major players on current threats? Do they think adding a money pool will get them more honest/accurate info? There is already plenty of incentive to cooperate with the intel groups (at least for anyone they would let into this little betting club).
So it seems to me to be nothing than a cash cow for some and drain for taxpayers. The cash cow part is why I’m not surprised at all that Sam and Col came together on this. (until someone squeezed common sense back into Collounsbury)
Hmm. I realize you took Sam Stone’s take on December’s position at face value, but my recollection of December’s POV is somewhat contrary from the gitgo.
In fact this is from December’s first post
Yes, indeed, I had not checked Sam’s assertion. Serves me right.
Okay, I probably missed this in all the details, but can someone explain to me a good reason why (as I understand it) the now-dead “terrorism futures market” was going to pay investors whose predictions had come true?
I mean, I can go along with some of the mathematical reasons for the scheme, but the idea of someone somewhere shouting “Yippie! Someone blew up the American embassy this week! I’m rich!” strikes me as wrong on so many levels…
[QUOTE]
*Originally posted by Sam Stone *
**Certainly, with projects like this the devil is in the details. Problem is, we’re not going to even see the details, because this got spiked because of a general uproar unrelated to the facts. **Pardon me, Sam, but how exactly are specific examples of possible futures contracts posted on the PAM website “unrelated to the facts”?
Since the market had yet to begin to function, the hypotheticals that DARPA was willing to provide concerning PAM were all the facts available.
Your fantasizing away those examples constitutes abandonment of the facts. You are arguing based on what you’d like to believe, not the facts.
Let me hold up this mirror, so you can get a better view.
I know: conservatives are fact-driven realpolitik types, and liberals take stands based on pure emotion. I will let you believe that, if it comforts you at night.
Frankly, I think it’s pretty damn realpolitiky to consider how leaders of other countries, whose very lives could become the fodder for these bets, might react to the US government’s proposed creation of such a market.
I understand markets quite well, thankyew. But if the very act of calling a particular market into existence has repercussions larger than whatever one is hoping to gain from that market, then understanding markets or not is beside the point.
I agree that’s it’s ignorance and not politics. Ignorance of the reality of markets. I’m all for trying it, I’m just saying that it won’t work in practice. By “not work” I mean that it won’t give the intelligence community anything they don’t already know. Markets fulfill a number of different functions but their ability to predict (specifically) future prices is dependent on those with the best information about future prices being willing/able to play.
I agree that’s it’s ignorance and not politics. Ignorance of the reality of markets. I never once looked at the issue of people making/losing money by “betting on terrorism” but only whether our intelligence community could extract some relevant information from the prices. I’m all for trying it and, yes, I would find the results interesting. I’m just saying that it won’t work in practice and by “not work” I mean that it probably won’t give the intelligence community anything they don’t already know. Markets fulfill a number of different functions but their ability to predict (specifically) future prices is dependent on those with the best information about future prices being willing/able to play. The larger issues include getting the markets to a critical mass where odd price variations really mean something other than poor liquidity. To make the discussion more interesting I think we should center it around what a reasonable contract might be like and then work from there.
Sidenote: Funny that throughout my career I had to listen to academics tell me that what I was doing in practice couldn’t work in theory and now I’m telling them that something that could work in theory won’t work in practice.
Do you mean “why” or “how?”
I meant “how could you justify such an act?”
First off, it’s not the DoD or any government agency that is “paying”, it’s the loser of the bet. The justification for allowing someone to bet and win on the prospects of future terrorist activities(and providing the funding for the clearinghouse) is that the prices of such bets may provide information that will allow the authorities to prevent the terrorist act from occurring in the first place (another reason why it won’t work). Let’s say that intelligence sources estimate a 10% chance of the likelihood of a major terrorist attack in NYC (defined by number of people killed or dollar amount of destruction, etc.) within the next 2 weeks. All of a sudden the future for “Major Terrorist Attack in NY” jumps from 10 cents to 75 cents. This throws up a red flag to intelligence analysts who throw more resources at operations in NY to see if somethings up or if they missed something. Let’s say that because of this jump in price, the NSA increases their monitoring of communications transmissions in/out of NYC during that week and ends up thwarting a plot to bomb the Empire State Building. Don’t you think it’s worth it to allow people to gamble on unpleasant things if their gambling can help prevent unpleasant things from happening in the first place?
So let me get this straight, the market jumps on the basis of intelligence reports. Is it because they think 10% is a good bet or because they think the intel is low-balling? If the former then we are not gaining any new intelligence, if the latter I suppose we are getting an informal and inarticulate 2nd assessment of the intel. Shouldn’t the report turn up a red flag in the first place? So busy analyzing the market they forgot to read it. 
(I know you are not really arguing for it practically. BTW, this is the first I’ve heard anyone call the Pentagon academics, lol)
Also:
How secret would this market have to be? If I was a terrorist I would watch the “Bomb London” futures to see if my plans had leaked.