Damn the Slam PAM Plan! Canceling the Pentagon's futures market is cowardly and dumb.

Slate - MSN ^ | July 30, 2003 | James Surowiecki

[FairOpinion]

But for all the grandstanding and moral posturing, the most important question has been absent from the discussion: Would the market have worked? In other words, would it have improved American intelligence capabilities and enhanced national security?

All the evidence suggests that it would have. As Daniel Gross and Brendan Koerner mentioned in their Slate pieces yesterday, similar markets have proven surprisingly good at predicting the outcome of presidential elections, box-office results, and even the fall of Saddam Hussein. We now have more than a decade of empirical results to back up the idea that "decision markets" can work, in addition to the reams of data on the efficacy of traditional futures markets, such as those for corn or interest rates. (There's evidence, for instance, that orange-juice futures do a better job of predicting the weather in Florida than traditional weather forecasts do.)

Even when traders are not necessarily experts, their collective judgment is often remarkably accurate because markets are efficient at uncovering and aggregating diverse pieces of information.

Given that, it's reasonable to think a prediction market might add something to our understanding of the future of the Middle East.

PAM might also have been effective because traders in a market have no incentive other than making the right prediction—that is, there are no bureaucratic or political factors influencing their decisions—so they eliminate many of the hurdles that limit the flow of information within organizations. That's especially important in the case of the intelligence community because we know that, for example, in the case of 9/11 there was lots of valuable and relevant information available before the attack took place. What was missing was a mechanism for aggregating that information in a single place. A well-designed market might have served as that mechanism.

[FairOpinion]

Worth reading the whole article.

As some suggested in other related thread, I hope some private enterprise will pick up and implement the idea.

Canceling it is just more proof, that people react emotionally, not logically, and unfortunately even the Pentagon is subject to these illogical emotional demands by people.

[dandelion]

I stand vindicated!

[FairOpinion]

Ping

[Cold Heat]

Rummy admitted exactly that, in so many words, at a presser today.

He said he knew little about the project but stomped on it anyway. He said he would look into it post mortem.

I think they will just do a end around and have the market do it. That is how it should have been handled. (assuming the idea is sound)

[FairOpinion]

"I stand vindicated!"

---

Absolutely. I remember reading your earlier posts on other threads about this and I totally agreed with you. It's too bad that the Pentagon just buckled under, instead of coming out and explaining the value of such a system to the people, as this article and a few others, which surfaced, have done.

Did you see the Fortune article?

http://www.freerepublic.com/focus/f-news/955208/posts

and what another freeper wrote and posted:

http://www.freerepublic.com/focus/f-news/955475/posts

[dandelion]

Yes! I'm glad someone is finally addressing this issue - everytime we get some program to target terrorists instead of citizens, the Democrats cry foul. Amazing - they want a national register for handguns, but they don't want a covert OR overt operations which target terrorists...

[gcruse]

Canceling it is just more proof, that people react emotionally

Maybe, maybe not.  The stock market is the same thing.  Have
you ever heard the comment that the stock market has predicted
eight out of the last two recessions?  As agitated as we are getting
over the heightened warnings that produce nothing, imagine the
angst everytime the crisis fund pointed to disaster.  

We all live in this yellow submarine, and damned few of us have
any more knowledge about what terrorists might be planning than
the other 99.9% of the population.  What you would have with
the prediction pool would be that 99.9% making predictions
based on the same dearth of information.  

The financial markets incorporate the performance observations
of millions of individuals.  The prediction pool might as well base its outlook
on one guy, since the next guy or the even the next million guys
have no better information than the one.

[Amerigomag]

It's too bad that the Pentagon just buckled under, instead of coming out and explaining the value of such a system to the people

Very difficult to do because the essences of the system is covert. The intelligence value of the system is more based on the nature of it's honeypot than it's public face.

Not many targeted participants would be anxious to expose their identity and their intelligence network if the system value was explained in depth. Even a classified briefing would raise suspicions and one set of congressional loose lips would sink the ship.

[SwinneySwitch]

You also have the terrorists who might be tempted to cash in on a sure thing and provide us with some forewarning of where and when the next 9/11 would occur.

[gcruse]

Yes. I can see some red-eyed raghead shorting the fact that nothing will happen on Mother's Day, then cashing in when, in fact, nothing does.

[Paleo Conservative]

If this is such a great idea, why does the Pentagon have to implement it? Why couldn't someone in the private sector start up such a market?

[FairOpinion]

Because the idea was to use it as a study, an experiment and see how accurate it is.

Now that it's been canceled, I keep seeing articles, where they relialize it was a good idea after all.

But maybe a private firm will pick it up.

[FairOpinion]

Here is another article giving examples of where similar systems worked.

http://www.freerepublic.com/focus/news/955536/posts?page=1

[Paleo Conservative]

I know that. All I'm saying is that if it is still a good idea, someone in the private sector could do it regardless of what Congress says.

[FairOpinion]

"All I'm saying is that if it is still a good idea, someone in the private sector could do it regardless of what Congress says. "

--

I hope so. It's just that being run by DARPA would have been more of a "contolled experiment". But maybe they can get some private companies to do it, I think the Economist magazine was participating.

We should have saved the information on the website, before they took them all down. Darn.

[ModelBreaker]

The terrorism 'market' would work. Market prices move at the margin. That is, big price movements happen when only a small percentage of the total money in the market starts moving.

Bad guys will have inside information about pending terrorist stuff when they plan it. The closer it gets to fruition, the more folks will know something big is coming. It is almost impossible to take greed out of humans. Some of the bad guys--or their brother-in-laws, and then their best friends and their best friends--will be unable to resist cashing in on their inside information. This is human nature. It happens all the time in US financial markets even though you can go to jail for doing it.

When bad guys start cashing in (or their buddies), the markets start to move.

This accomplishes two things: 1) the obvious, we can look at the movement of the market and get a sense of whether intelligence about terrorist events is real or not; and 2) it forces the bad guys to change their operational techniques. The circle of people in the know has to contract a lot or the market will give them away. The circle of folks that Osama can trust contracts substantially. This is a little like making them hide in caves. It doesn't put them out of business. But it makes business a lot harder.

[No Left Turn]

Thanks for the ping. I can't believe I'm reading articles supporting the idea in Slate and New York Times. I'd like to see more mainstream journalists cover the insurance potential of an expanded terror futures market.