Pentagon's Futures Market Plan Condemned

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Pentagon’s Futures Market Plan Condemned
Mon Jul 28, 9:52 PM ET Add Top Stories - AP to My Yahoo!

By KEN GUGGENHEIM, Associated Press Writer

WASHINGTON - The Pentagon (news - web sites) is setting up a stock-market style system in which investors would bet on terror attacks, assassinations and other events in the Middle East. Defense officials hope to gain intelligence and useful predictions while investors who guessed right would win profits.

Two Democratic senators demanded Monday the project be stopped before investors begin registering this week. “The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it’s grotesque,” Sen. Ron Wyden (news, bio, voting record), D-Ore., said.

The Pentagon office overseeing the program, called the Policy Analysis Market, said it was part of a research effort “to investigate the broadest possible set of new ways to prevent terrorist attacks.” It said there would be a re-evaluation before more money was committed.

The market would work this way. Investors would buy and sell futures contracts — essentially a series of predictions about what they believe might happen in the Mideast. Holder of a futures contract that came true would collect the proceeds of investors who put money into the market but predicted wrong.

A graphic on the market’s Web page showed hypothetical futures contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat (news - web sites) would be assassinated or Jordanian King Abdullah II would be overthrown.

Although the Web site described the Policy Analysis Market as “a market in the future of the Middle East,” the graphic also included the possibility of a North Korea (news - web sites) missile attack.

That graphic was apparently removed from the Web site hours after the news conference in which Wyden and fellow Democratic Sen. Byron Dorgan (news, bio, voting record) of North Dakota criticizing the market.

Dorgan described it as useless, offensive and “unbelievably stupid.”

“Can you imagine if another country set up a betting parlor so that people could go in … and bet on the assassination of an American political figure, or the overthrow of this institution or that institution?” he said.

According to its Web site, the Policy Analysis Market would be a joint program of the Pentagon’s Defense Advanced Research Projects Agency, known as DARPA, and two private companies: Net Exchange, a market technologies company, and the Economist Intelligence Unit, the business information arm of the publisher of The Economist magazine.

DARPA has received strong criticism from Congress for its Terrorism Information Awareness program, a computerized surveillance program that has raised privacy concerns. Wyden said the Policy Analysis Market is under retired Adm. John Poindexter, the head of the Terrorism Information Awareness program and, in the 1980s, a key figure in the Iran-Contra scandal.

In its statement Monday, DARPA said that markets offer efficient, effective and timely methods for collecting “dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions.”

The description of the market on its Web site makes it appear similar to a computer-based commodities market. Contracts would be available based on economic health, civil stability, military disposition and U.S. economic and military involvement in Egypt, Iran, Iraq (news - web sites), Israel, Jordan, Saudi Arabia, Syria and Turkey.

Contracts would also be available on “global economic and conflict indicators” and specific events, for example U.S. recognition of a Palestinian state.

Traders who believe an event will occur can buy a futures contract. Those who believe the event is unlikely can try to sell a contract. The Web site does not address how much money investors would be likely to put into the market but says analysts would be motivated by the “prospect of profit and at pain of loss” to make accurate predictions.

Registration would begin Friday with trading beginning Oct. 1. The market would initially be limited to 1,000 traders, increasing to at least 10,000 by Jan. 1.

The Web site says government agencies will not be allowed to participate and will not have access to the identities or funds of traders.

The market is a project of a DARPA division called FutureMAP, or “Futures Markets Applied to Prediction.” FutureMAP is trying to develop programs that would allow the Defense Department to use market forces to predict future events, according to its Web site.

“The rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise,” it said.

It said the markets must offer “compensation that is ethically and legally satisfactory to all sectors involved, while remaining attractive enough to ensure full and continuous participation of individual parties.”

Dorgan and Wyden released a letter to Poindexter calling for an immediate end to the program. They noted a May 20 report to lawmakers that cited the possibility of using market forces to predict whether terrorists would attack Israel with biological weapons.

“Surely such a threat should be met with intelligence gathering of the highest quality — not by putting the question to individuals betting on an Internet Web site,” they said.

Wyden said $600,000 has been spent on the program so far and the Pentagon plans to spend an additional $149,000 this year. The Pentagon has requested $3 million for the program for next year and $5 million for the following year.

Wyden said the Senate version of next year’s defense spending bill would cut off money for the program, but the House version would fund it. The two versions will have to be reconciled.

On the Net:

Policy Analysis Market: www.policyanalysismarket.org

DARPA’s FutureMap Web site: http://www.darpa.mil/iao/FutureMap.htm

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very disturbing. this fight against terrorism is fast becoming a booming business. if officials themselves had investments then its obvious they will do everything possible to win more and more which means more terror attacts.

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Pentagon plans online terror bets

By Paul Reynolds
BBC News Online world affairs correspondent

The Pentagon is planning to set up an online trading market in which bets could be made about future terrorist attacks and other major political developments.
The idea is to try to improve the prediction and prevention of events by using the expertise of the open market instead of relying on government agencies which have often failed in the past.

One example used on the website set up for the programme is the possible overthrow of King Abdullah of Jordan.

Castro, who the CIA has failed to kill in the past, could be worth a bet
But the plan has already run into fierce opposition in the US Congress.

Senators Ron Wyden of Oregon and Byron Dorgan of North Dakota, both Democrats, have written to the Pentagon urging it to abandon the idea.

“The idea of a federal betting parlour on atrocities and terrorism is ridiculous and it’s grotesque,” said Senator Wyden.

Senator Dorgan said that it was “useless, offensive and unbelievably stupid”. He said he had trouble in persuading other people that it was not a hoax.

“How would you feel if you were the King of Jordan and you learned that the US Defence Department was taking bets on your being overthrown within a year?” he asked.

Market vision

The US Defence Department defended the initiative and compared the proposed market to those predicting the price of petroleum, the results of elections and even the demand for cinema tickets.

“Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information,” it said in a statement.

Markets have done this in economics for some time and the Iowa Electronic Markets does it for US presidential elections, so it is not really novel

Merli Baroudi
Risk Services
“Futures markets have proven themselves to be good at predicting such things as election results; they are often better than expert opinions.”

The scheme is called the Policy Analysis Market (PAM) and it is run by a Pentagon unit known as the Defence Advanced Research Projects Unit.

This is under the control of retired Admiral John Poindexter who has been involved in another controversy recently in a plan for a sweeping electronic intelligence operation.

The market would work by getting traders to deposit money in an account and using that to buy and sell contracts. They would make their money if a particular event actually happened.

Invitations have gone out online for an initial 1,000 traders to register on 1 August and the programme is designed to start on 1 October.

Cost effective insight

Senator Wyden explained the system by saying: "You may think early on that Prime Minister X is going to be assassinated. So you buy the futures contracts for 5 cents each.

“The payoff if he is assassinated is $1 per futures. So if it comes to pass, those who bought at 5 cents make 95 cents and those who bought at 50 cents make 50 cents.”

One of the organisations providing data for the project is the Economist Intelligence Unit in London.

Its Director of Risk Services, Merli Baroudi, told News Online: “It is trying to gather insights of people in a cost effective way. Markets have done this in economics for some time and the Iowa Electronic Markets does it for US presidential elections, so it is not really novel.”

The website set up by PAM says that “it should prove as engaging as it is informative”.

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BBC NEWS | Americas | Pentagon axes online terror bets

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[QUOTE]
*Originally posted by EntityParadigm: *
Pentagon plans online terror bets

The Pentagon is planning to set up an online trading market in which bets could be made about future terrorist attacks and other major political developments.
The idea is to try to improve the prediction and prevention of events by using the expertise of the open market instead of relying on government agencies which have often failed in the past.

One example used on the website set up for the programme is the possible overthrow of King Abdullah of Jordan.

[/QUOTE]

How about we create the same thing for us gupies. we could remove the money, and just bet on stuff! what do you guys think?
we could start with, "Who is going to kick bush's ass?"

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Those that conceived this plan were smoking crack at the time.

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** Pentagon Terror Futures Market Scrapped **

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=3179832

It seems to me that one of the reasons sports books, betting parlors and futures markets work is that they derive a certain amount of integrity from the fact that the betting participants cannot directly influence the outcome of a bet. People bet on the future price of orange juice for instance based upon their prediction of the weather. A cold winter with a hard frost will damage the crop and the price will go up. People can’t change the weather. When you start worrying that the outcome can be fixed by the bettors, the market loses its integrity and fewer people play.

This Terror Futures Market sounds like it could be fixed. A group could easily place a bet on a big longshot (someone getting killed) and then proceed with a plan to make the event happen. This was just plain a bad idea that was not well thought through.

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Who's the military genius that came up w/this idea? It may have proven-out to be effective over time, but it's tasteless.

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[QUOTE]
*Originally posted by Stu: *
Who's the military genius that came up w/this idea? It may have proven-out to be effective over time, but it's tasteless.
[/QUOTE]

Don't know the specific guy but the name of retired Admiral John Poindexter pops up quite a bit in connection with DARPA. Regardless of your politics, you've got to admit that the overall plan and theory pursued in the Iran-Contra affair (where he was a major participant) had a certain touch of genius. Sell US weapons to a third party at a profit for the US treasury. Then resell them to Iranians at vastly inflated markups. Use the added profit to finance the the activities of the Contras to overthrow a marxist government in Nicarauga at no expense to the US taxpayer. And, perhaps, get the release of US hostages by Iran.

With the idea of the Terrorist Futures Market, we can see that DARPA is certainly thinking well outside the box of the conventional. Maybe an influence of Poindexter??

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I only found out about this on the radio news this morning. At first the idea sounds gross... to bet on someone being killed seems to defy common sense... however, even if the US government (i.e. Pentagon) has scrapped the plan, I think the idea has enough potential which may mean any private investor(s) can make it happen.

And once its there, how can they just limit it to Middle East. You can bet (pun intended) that, very soon, folks will be buying futures contracts on acts of terrorism within US and all over the world too. The concept is rediculously intriguing.

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I don't know if I'd calling it thinking outside the box....

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Time out you guys.

This project is a slap in the face of Congress. Right after 9/11 there were discussions of a Macro Insurance plan that would insure large losses during a terrorist incident. The builders of big skyscrapers were saying for example that they coud not buy insurance against the most catastrophic events, and that it was prohibiting major construction projects from going forward.

So there is a need for a hedging mechanism, and the private insurance industry has not responded, as the stakes are too high to manage absent governement guarantees. Now should this project have come from the PENTAGON? Obviously not, but It should be sponsored through the Treasury, or Commerce or something. Perhaps the Congress will find a way to complete this project that was identified after 9/11 but never followed through on.

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all I know is that you better not become a really successful trader opn this exchange, cuz even if it is by freak luck or chance ..and yer bets on terror are on the mark, u may get picked up as a person of interest either as a suspect or as an ESP test subject (yeah yeah i saw too many xfiles episodes)

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... chances are that if you make a killing (pardon the pun) you will be able to laugh all the way to the bank undetected.... take the trading of Airlines futures.. .. to date we haven't heard who actually profited from those 'bets' placed just prior to 9/11

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Well, let's say that you want to build a new hotel in Palestine, and that you have paid off Arafat 10 mil or so. If somebody shoots Arafat your investment goes down the tubes.

So you buy a future that will at least pay out 10mil, to at least reimburse your bribe money, if Arafat is shot.

On the other hand, if you are a member of the Saudi Royal family and you plunk down a Billion or so that an aircraft will hit New York City, I would imagine that a nice FBI agent would knock on your door.....

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One of the worst idea's to come out in a while.

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[QUOTE]
*Originally posted by Ohioguy: *
Well, let's say that you want to build a new hotel in Palestine, and that you have paid off Arafat 10 mil or so. If somebody shoots Arafat your investment goes down the tubes.

So you buy a future that will at least pay out 10mil, to at least reimburse your bribe money, if Arafat is shot.

[/QUOTE]

From a purely theoretical standpoint, that makes sense. BUT, presumably, people earmark investment dollars into projects and activities where they will experience the greatest return on investment after factoring in the degree of risk. If you can earn a higher return on investment simply by betting on Arafat getting killed than you will make with Hotel Palestine, the incentive is to "invest" in the former.

Come to think of it, maybe there is merit to this proposal. The odds of Arafat getting assassinated on any particular day have got to be astronomical. If, all of a sudden, a bunch of "smart" money flooded in taking those odds, it might very well be predictive of the event. But as Fraudia suggested, the scrutiny placed on any big winners would be pretty intense. And what of Arafat? What would he do if he learned that $100,000 was just bet at 1,000 to 1 odds on the proposition that he would be assassinated next Thursday? I know I'd need at least a couple changes of underwear for that day.

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I think DARPA restarted peer acid testing, judging by the stuff they’ve allowed to go public over the past dozen or so months…

There are some purely theoretical uses for this, but reality is a firm kick in the ass.

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so if a terrorist puts money into the system, would that be insider trading?

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:hehe:

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Poindexter to Quit Pentagon Post Amid Controversy

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^ Wow, good call the other day MV on who's brainchild this was.