Now that it’s too late to be of much practical benefit, let me say how embarrassed I am to be in the same party with the folks who demagogued the Pentagon’s “market in terrorist events” out of existence before it had even gotten started.
One fact I learned only today changed my evaluation of the proposal itself: The betting was going to be by invitation only, among a group of a thousand “experts.” That largely eliminated the problem that led me to dismiss the idea when I first heard of it: gaming. In a closed system such as the one proposed, there would be little if any risk of people coming in to deliberately make bets known by the bettors to be losing ones, simply to make the market move and thereby influence perceptions and policy.
With that objection out of the way, I’d take the results from a “terror market” somewhat seriously, simply on the twin propositions that everybody together is usually smarter than anybody alone and that people make better guesses when there’s real money at stake than when they’re just talking to hear the sound of their own voices.
The analogy to the financial markets would have been incomplete, because (presumably) none of the people actually making decisions about when a terrorist attack was going to happen would be participating in deciding about those attacks. Still, the “market”-estimated probability of a big attack next year would represent a better guess than yours or mine, and quite likely a better guess than the CIA’s, because the bettors wouldn’t have to worry about the impact on their careers of making a guess contrary to the current party line.
But even if the proposal had been more flawed than it was, using the laughter which is as the crackling of thorns under a pot, plus fake moral outrage, to shut it down was a terrible mistake. The proposal came out of the Defense Advanced Research Projects Agency. As my friend remarked, “This might or might not have been a stupid idea, but if DARPA isn’t doing some stupid things it’s not doing its job.” The next DARPA whiz-kid who comes up with an off-the-wall idea now has to worry about his boss saying “No, we don’t want to get burned again the way we did with terror futures.”
Like Matthew Yglesias, I’m delighted that Poindexter got dumped, but this was a rotten way to do it.
Bad Daschle! Bad! Bad!
[However, I was pleased to see a bunch of the left-bloggers, including TAPPED, speaking up for the wonders of Hayekian distributed information processing.]