[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.

[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.

[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.