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I don't understand why this could be such a good idea:

How can this "market" be more accurate than the predictions of government people who would be privy to the latest secret intelligence on terrroist activity?

Wouldn't it be akin to people without access to meteorlogical data being better at predicting the weather than professional weathermen?

can anyone elighten me?

"Wouldn't it be akin to people without access to meteorlogical data being better at predicting the weather than professional weathermen? "

This is not a comprehensive response, but some random thoughts...

Money (greed and fear) motivates and moves the market (whatever kind of market)...so having a tradeable market in war/terrorism risk would provide a venue for information from ALL OVER THE WORLD to be traded on, not just what fbi/dia/cia manage to put together. There would certainly be information leakage from the US intelligence agencies as well, which the market might price in more comprehensively than the beauracracies manage to do.

Suppose the KGB (or better yet, some red chinese intel)picks up info on some stuff that might be being planned....contacts in the market may know about this before the KGB has a chance to process and *consider* sharing the info with the US, since the source will undoubtably be paid. The market will reflect the new info before the americans have a prayer of finding out about it through channels.

From a domestic political view, this isn't going to happen, and the first time the market was right would cause all kinds of class-warfare recriminations, but I am not sure it is a bad idea, as far as its predictive value goes.