It sounds jaw-droppingly callous, not to mention absurd: An
Internet gambling parlor, sponsored by the U.S. government, on
politics in the Middle East. Anyone, from Osama bin Laden to
your grandmother, can bet over the Web on such questions as
whether Yasser Arafat will be assassinated or Turkey's
government will be overthrown.
If the bettors are right, they'll win money; if they're
wrong, they'll lose their wagers. The site itself will keep
numerical tallies of the current "odds" for various events.
Why not just ask the guys at the corner bar whether or not
we should invade Jordan, or play SimCity to make foreign
But experts say the DARPA-backed Policy Analysis Market (http://www.policyanalysismarket.org/)
is based on a legitimate theory, the Efficient Market
Hypothesis, that has a proven track record in predicting
outcomes. Basically, the idea is that the collective
consciousness is smarter than any single person. By forcing
people to put their money where their mouth is, the wagers
help weed out know-nothings and give more weight to the
opinions of those in the know.
"Markets are a great way of aggregating information that a
lot of different people have," said Eric Zitzewitz, an
assistant professor of economics at the Stanford Graduate
School of Business. "One of the big issues with intelligence
that was gathered before 9/11 was that information wasn't
aggregated within the intelligence community. This is directly
aimed at addressing that."
Although the idea sounds offensive to some, "to the extent
this has even a small probability of using valuable
information to help prevent tragedies, that's got to be the
overriding ethical concern," he said.
In a paper published in February about the effect of the
looming war with Iraq on the stock market, Zitzewitz and two
Stanford colleagues used predictions from Web site
Tradesports.com, which allows people to bet on current events.
"We were able to get minute-by-minute estimates of the
probability of war," he said. "When Colin Powell gave a speech
at the UN that was hawkish, the probability would blip up and
the stock market would blip down."
Similar markets have predicted the box-office potential of
movies or the future prices of petroleum. The Iowa Electronic
Markets, run by the business school at the University of Iowa,
lets investors buy and sell "shares" in candidates. Some
studies have showed it does better than pollsters at
predicting election results. Similarly, the orange juice
futures market is better than the National Weather Service at
predicting Florida weather, some experts said.
"It's a powerful idea and it works a lot of the time," said
Mark Rubinstein, a finance professor at the Haas School of
Business at UC Berkeley. Still, he cautioned, the government's
application of the theory for intelligence gathering has a
number of potential drawbacks, ranging from whether terrorists
or others could easily manipulate the system, to whether
government employees might engage in "insider trading,"
leaking proprietary information to make a quick buck.
Robin Hanson, an economics professor at George Mason
University in Fairfax, Va., has spent over a decade
researching decision markets. Two years ago, he joined up with
Net Exchange, a San Diego firm, and the Economist Intelligence
Unit, an arm of the London magazine The Economist, to come up
with the Policy Analysis Market, in response to a government
"The basic idea of intelligence is to find out about bad
things that might happen. You pay people to find out about
those things," he said in a phone interview. "These markets
are doing the same thing, offering to pay people for
information about bad things."
As compared to government studies, the online trading can
provide real-time information, he said. Hanson said the
betting process helps attract more- knowledgeable players.
He hopes to draw players who are well-informed, although he
said "it's hard to attract the people who know the most,
because they are very busy people. It's easier to attract the
underlings who do a lot of the work and don't get a lot of
Hanson spelled out his ideal players: "People who work for
the government who are in intelligence organizations, people
in think tanks, university professors, people who are
hobbyists in Mideast foreign policy, financial traders or
analysts who keep track of certain countries, the travel
He welcomed the controversy that erupted Monday when two
Democratic senators denounced the project as "grotesque" and
"This is a low-budget operation," he said, noting that it's
so far cost less than $1 million. "This sort of national media
attention is far and away more than we can afford to pay for
E-mail Carolyn Said at email@example.com.