Dynamist Blog


That's how Hal Varian describes the so-called terrorism futures market in his latest Economic Scene column. From the conclusion:

[A]ssassination futures were not among the planned securities, contrary to most press reports. The market design allowed traders to propose securities in various events, and the Policy Analysis Market Web site speculated that some traders might propose to add securities in assassinations. That off-the-cuff speculative remark had fatal consequences, alas.

The securities that were an essential part of the auction design were indexes of political, economic and military activity. The most useful such market would probably have been a market for futures in a "political instability index," a weighted average of various political indicators, like the number of mass demonstrations, unemployment levels, arrests--and, yes, assassination attempts. (Type "political instability index" into Google for some examples.)

If the markets had been pitched in this way, I doubt that there would have been many objections raised.

But instead politicians, reporters and editorial writers mistakenly jumped onto "assassination and terrorist attack futures" as a fundamental part of the market design.

Given the public outcry, it seems clear that there will not be a public market in assassination futures anytime soon. But there is no reason not to have a futures market in political, social and economic indicators, which is what the Pentagon's project was actually about.

We desperately need better ways to forecast political instability, and the Policy Analysis Market had significant promise. It's sad to see poor public relations torpedo a potentially important tool for intelligence analysis.

In Washington, appearance is more important than reality. That's why airport security is confiscating pen knives, while innovations that might actually make us safer get squelched. "Thinking outside the box" is a nice idea until it comes time to write a press release.

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