Politics - AP

Pentagon's Futures Market Plan Condemned
Mon Jul 28, 7:46 PM ET Add Politics - AP to My Yahoo!


By KEN GUGGENHEIM, Associated Press Writer

WASHINGTON - The Pentagon (news - web sites) is setting up a
stock-market style system in which investors would bet on terror
attacks, assassinations and other events in the Middle East. Defense
officials hope to gain intelligence and useful predictions while
investors who guessed right would win profits.


AP Photo



Two Democratic senators demanded Monday the project be stopped before
investors begin registering this week. "The idea of a federal betting
parlor on atrocities and terrorism is ridiculous and it's grotesque,"
Sen. Ron Wyden (news, bio, voting record), D-Ore., said.


The Pentagon office overseeing the program, called the Policy Analysis
Market, said it was part of a research effort "to investigate the
broadest possible set of new ways to prevent terrorist attacks." It
said there would be a re-evaluation before more money was committed.


The market would work this way. Investors would buy and sell futures
contracts — essentially a series of predictions about what they
believe might happen in the Mideast. Holder of a futures contract that
came true would collect the proceeds of investors who put money into
the market but predicted wrong.


A graphic on the market's Web page showed hypothetical futures
contracts in which investors could trade on the likelihood that
Palestinian leader Yasser Arafat (news - web sites) would be
assassinated or Jordanian King Abdullah II would be overthrown.


Although the Web site described the Policy Analysis Market as "a
market in the future of the Middle East," the graphic also included
the possibility of a North Korea (news - web sites) missile attack.


That graphic was apparently removed from the Web site hours after the
news conference in which Wyden and fellow Democratic Sen. Byron Dorgan
(news, bio, voting record) of North Dakota criticizing the market.


Dorgan described it as useless, offensive and "unbelievably stupid."


"Can you imagine if another country set up a betting parlor so that
people could go in ... and bet on the assassination of an American
political figure, or the overthrow of this institution or that
institution?" he said.


According to its Web site, the Policy Analysis Market would be a joint
program of the Pentagon's Defense Advanced Research Projects Agency,
known as DARPA, and two private companies: Net Exchange, a market
technologies company, and the Economist Intelligence Unit, the
business information arm of the publisher of The Economist magazine.


DARPA has received strong criticism from Congress for its Terrorism
Information Awareness program, a computerized surveillance program
that has raised privacy concerns. Wyden said the Policy Analysis
Market is under retired Adm. John Poindexter, the head of the
Terrorism Information Awareness program and, in the 1980s, a key
figure in the Iran-Contra scandal.


In its statement Monday, DARPA said that markets offer efficient,
effective and timely methods for collecting "dispersed and even hidden
information. Futures markets have proven themselves to be good at
predicting such things as elections results; they are often better
than expert opinions."


The description of the market on its Web site makes it appear similar
to a computer-based commodities market. Contracts would be available
based on economic health, civil stability, military disposition and
U.S. economic and military involvement in Egypt, Iran, Iraq (news -
web sites), Israel, Jordan, Saudi Arabia, Syria and Turkey.


Contracts would also be available on "global economic and conflict
indicators" and specific events, for example U.S. recognition of a
Palestinian state.


Traders who believe an event will occur can buy a futures contract.
Those who believe the event is unlikely can try to sell a contract.
The Web site does not address how much money investors would be likely
to put into the market but says analysts would be motivated by the
"prospect of profit and at pain of loss" to make accurate predictions.


Registration would begin Friday with trading beginning Oct. 1. The
market would initially be limited to 1,000 traders, increasing to at
least 10,000 by Jan. 1.


The Web site says government agencies will not be allowed to
participate and will not have access to the identities or funds of
traders.





The market is a project of a DARPA division called FutureMAP, or
"Futures Markets Applied to Prediction." FutureMAP is trying to
develop programs that would allow the Defense Department to use market
forces to predict future events, according to its Web site.

"The rapid reaction of markets to knowledge held by only a few
participants may provide an early warning system to avoid surprise,"
it said.

It said the markets must offer "compensation that is ethically and
legally satisfactory to all sectors involved, while remaining
attractive enough to ensure full and continuous participation of
individual parties."

Dorgan and Wyden released a letter to Poindexter calling for an
immediate end to the program. They noted a May 20 report to lawmakers
that cited the possibility of using market forces to predict whether
terrorists would attack Israel with biological weapons.

"Surely such a threat should be met with intelligence gathering of the
highest quality — not by putting the question to individuals betting
on an Internet Web site," they said.

Wyden said $600,000 has been spent on the program so far and the
Pentagon plans to spend an additional $149,000 this year. The Pentagon
has requested $3 million for the program for next year and $5 million
for the following year.

Wyden said the Senate version of next year's defense spending bill
would cut off money for the program, but the House version would fund
it. The two versions will have to be reconciled.