Wednesday, July 30, 2003 :::
The piece on "prediction markets" links to a New York Times article about the one that DARPA was proposing for terrorism events.But it became abundantly clear this morning, at the hearing of Senator Warner's committee, that whatever the logic of the Pentagon's position it had no chance of surviving politically.
Reason and political viability have little to do with each other when Byron Dorgan's on the case.I suggested (perhaps not here) something like this a few months ago, though it might not have seemed like this to Senator Dorgan. I was thinking in terms of terrorism insurance, and a market for catastrophe derivatives similar to the cat bonds that have had some limited, over-the-counter use in recent years; this would let insurance companies off-load large, correlated risks onto a broad base of speculators. The stated goal in the DARPA plan is not hedging of risks so much as allowing various players with different kinds of expertise to combine their knowledge in one of the most effective ways possible, viz. through a market; either market could serve both purposes. The problem with the idea that I couldn't get rid of was also noted in the Times article:
The senators also suggested that terrorists could participate because the traders' identities will be unknown."This appears to encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead U.S. intelligence authorities," they said in a letter to Admiral Poindexter, the director of the Terrorism Information Awareness Office, which the opponents said had developed the idea.
Indeed, there's some evidence that terrorists used more conventional markets to profit from the collapse of airline stocks in the aftermath of 9/11. I don't think this is why Dorgan and others were apoplectic, though; their problem with it is that they've absorbed our cultural aversion to money.(There's a moral distinction to be made between benefiting from the misfortune of others and acting to bring it about. The practical distinction between them melts away when it's hard to police people causing the misfortune; this is the problem we've run into here.)
::: posted by dWj at 9:31 AM
