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In 2003, the Pentagon nearly created a terrorism prediction market.
- zacharyvoase 16y agoOther relevant links: * http://en.wikipedia.org/wiki/Policy_Analysis_Market http://en.wikipedia.org/wiki/Policy_Analysis_Market * http://en.wikipedia.org/wiki/Total_Information_Awareness#Futures_Markets_Applied_to_Prediction_.28FutureMAP.29 http://en.wikipedia.org/wiki/Total_Information_Awareness#Fut...
- jdp23 16y agoPoindexter and others pushing Total Information Awareness did a horrible job of marketing. The logo even had an eye in a pyramid, all the better to feed conspiracy theorists' concerns about the Illuminati! So in a rare victory for civil libertarians that Congress wound up defunding TIA. Many of the individual projects continued forward or have since resurfaced. They just have better logos and acronyms now.
- Duff 16y agoYou don't like this? What are you, some sort of communist? The US Government has already sold the livelihood of most of its people (ie. industry) under the guise of the free market. Talk to someone who grew up in Buffalo, Cleveland or any number of places in Michigan and they'll tell you all about it. Letting people make money off of betting on you getting blown up is just a more offensive way of getting rich on the backs of others.
- zacharyvoase 16y agoI can’t tell who this comment is directed to, but I assume it’s me (the submitter). I am a big fan of prediction markets, and have no scruples as to their subject. I don’t see it as being ‘offensive’ in any way. The suggestion that I am ‘some sort of communist’ does make me chuckle though :)
- bennylope 16y agoThis is an unhelpful comment. The Policy Analysis Market was designed to allow registered traders (it was going to start as a market open only to select analysts, experts) to make money-backed predictions. That is, putting your money where you mouth is. It's a tool to filter noise and focus analysis, not fuel hedge funds.
- watchandwait 16y agoDuff's ignorant anger is why the program was killed.
- bennylope 16y agoIn a nutshell, yes. And the earlier comment about DARPA's marketing is spot on. Their poor response did not temper the response from Capitol Hill.
- eli 16y agoObviously it creates a problem with incentives, but I thought it was a pretty cool idea. If you could get the volume high enough I bet it would be really informative.
- RyanMcGreal 16y agoI remember that. I actually put up a parody about it on my old personal web site: http://www3.sympatico.ca/taylormcgreal/lottery.html http://www3.sympatico.ca/taylormcgreal/lottery.html
- jsulak 16y agoTalk about potential moral hazard...
- metageek 16y agoNo more so than buying insurance against terrorism.
- _delirium 16y agoThere are (admittedly imperfect) rules for insurance sales that attempt to minimize the moral hazard, though. One must normally have an "insurable interest" to buy insurance, i.e. the potential to actually yourself suffer some harm if the insured-against event happens. So you can't just buy insurance as a pure bet, where if an event happens, you get a payout without suffering any harm from the event. For example, you can take out property insurance on your own property, but not on your neighbor's property, or on Stanford University's property, or on the World Trade Center (unless you own one of those).
- quanticle 16y agoSo you can't just buy insurance as a pure bet, where if an event happens, you get a payout without suffering any harm from the event. The importance of that rule was demonstrated in the recent financial meltdown, as AIG was unable to pay all the claims of people who took out "insurance" on collateralized debt obligations they didn't own.
- notahacker 16y agoNot really. Insurance companies have an interest in not paying the costs of terrorism; the insured have a vested interest in not being blown up. Both interests are aligned squarely against terrorism[1]. In a futures market, people betting on events occurring within a given time frame have their interests closely aligned with allowing or encouraging those events to occur. Even if you restrict it to carefully qualified security analysts who you're confident aren't backing terrorists, a prediction market financially incentivises them to withhold any intel they've obtained or observations they've made[2] that might disrupt terrorists' original plans. [1]Unless you're trying to commit insurance fraud by staging attacks on your own overvalued property. No system is without weaknesses. [2]If there isn't any information asymmetry in their favour then there's no expectation of profit
- gwalker 16y agoThe amazing free market, the duct tape of neo-liberalism. It's kind of a cool idea but seriously?
- deleted 16y ago[deleted]
- gwern 16y ago> "An incredulous stare is not an argument." --philosopher David Lewis (1973)
- adam 16y agoThe government is now running prediction markets in several different branches (I know this because they're using our software - Inkling) and the TIA project comes up all the time in initial discussions. The comments however are usually that the idea was a good one and it was producing valuable information, they were just very tone deaf to perception issues.
- jedc 16y agoAnd for anyone reading, Inkling is an early YC company. W06, if I remember right. (Hi, Adam!)
- Symmetry 16y agoSort of a shame how that all panned out. I was on a mailing list where Robin Hanson was talking about the upcoming Pentagon prediction market a month or so before the media got wind of it. I was very skeptical at first, but he did a very good job of meeting people's objections - mostly by explaining details of how it would be implemented. Then the media got hold of the story and people raised all the objections I had heard before, but the explanations couldn't fit into single sentence sound bites so they never made it into the news.
- deleted 16y ago[deleted]
- protomyth 16y agoSound bites beat reason quite a lot of the time. This is one of those projects I would feel good about, but wish they had never told the public. Keep it to security / terrorist experts and maybe some fiction writers, history profs / writers, and cultural anthropology profs.
- Herring 16y ago"A bad design with a good presentation is doomed eventually. A good design with a bad presentation is doomed immediately."
- aothman 16y agoMy research involves making electronic agents to mediate interactions in markets, with one application being to prediction markets. One of the things I've discovered is that prediction markets where prices influence events are significantly more complicated from a theoretical perspective than a standard market. In such markets it can be difficult to predict how rational agents will act, even if they care only about their risk-neutral monetary payout and not about the events in question. For instance, one of the new trends in prediction markets has been corporate elicitation (e.g., Inkling Markets YC W06). For instance, a market might ask a pool of employees "When will product X ship?". Now consider the employee's problem. He knows the product will be delayed until November at the current pace, but that if managers see high November probabilities they'll cut back on the project and re-focus development efforts (or, perhaps instead, shift some staffers over to get the project done faster). How should the employee trade in this market? If your answer is "it's unclear" then you're exactly right. The self-referentiality of prices (they cause actions which then define prices) makes the problem much harder. It's actually possible to design markets which are so self-referential that any trade will be the right one (the market prices are self-predicting prophecies) or that any trade will be the wrong one (e.g., if there's a high price on terrorist attack Z then the government will always spend enough money to prevent Z from happening). In fact, the only way around the paradox is to have the prices in a prediction market not matter at all - for the managers to take the same course of action regardless of the prices they see in the market. But then why run a market in the first place? The whole thing is an interesting and seemingly fundamental perversion of the way we normally think about prices. And again, this is without any malicious intent on the part of participants, which will certainly only further confuse things.
- T_S_ 16y agoWell said. Economic theory show that the price system is a highly efficient way of trading allocations of scarce resources under perfect information. Funny thing about information, any scarcity is largely artificial, especially with today's technology. Also, if it is not shared, markets tend to disappear.
- jacques_chester 16y ago
- jmount 16y agoEven if it were informative it might me more useful for terrorists than defenders. For example if the market correctly valued hard to fix vulnerabilities then all the market does is help terrorists pick targets (as the market is one big analyst leak and asymmetric warfare is by definition easier for one side).
- hexis 16y agoThe same information that would help terrorists pick targets would also help the good guys prioritize which targets to protect better/first. Public information helps the good guys at least as much as the bad guys.
- jmount 16y agoAsymmetric costs, asymmetric benefits. The market would just leak a bunch of info as different analysts show off.
- xiaoma 16y agoI can only imagine how a bubble in such a market might "pop".
- JonnieCache 16y agoIf we're in the market for predictions, my personal prophecy is thus: DARPA, in an effort to offset the money wasted on this research, will pivot and attempt to sell this idea (and its obvious potential pitfalls) to the writers of 24 for the next series.
- endtime 16y agoGiven that 24 has ended, I'm going to short your prediction.
- JonnieCache 16y agoGimme your email, with this kind of blue-sky financial thinking we should start a hedge fund.
- dminor 16y agoHaha, amused to see this pop up on HN. I was the lead programmer on it. Nothing quite makes you feel quite so connected to the national legislative process as seeing your project roundly condemned on the floor of Congress ;)
- jamespitts 16y agoI was working at the Hollywood Stock Exchange at the time and was completely perplexed by the "betting parlor" hyperbole used by the opposing congressmen. It seemed to me that the actual players of the game would be much more interested in the status of making the right call or in creating content than any money they might earn. If you are able to comment on this, what were the underlying pricing mechanics of the market? How were new securities going to be created? Heh, to think that simulated stock market software might be classified...
- dminor 16y agoWe used Robin Hanson's logarithmic market scoring rule (http://hanson.gmu.edu/mktscore.pdf http://hanson.gmu.edu/mktscore.pdf). The combinatorial aspect allowed us to try to answer questions about the correlation between different securities in the market - hopefully more interesting for policy analysis than a simple predictor of the future. The main securities in the market were 5 statistics that we were tracking quarterly in 8 different Mid-East countries (things like civil stability, military activity, US aid, etc). Then there were supposed to be a handful of one-off type events; we hadn't decided on them yet, but gave some "ripped from the headlines" examples that were the main focus of the criticism. The values of all these securities were to be judged by the Economist Intelligence Unit.
- eli 16y agoDecent article from James Surowiecki defending the program: http://www.slate.com/id/2086427/ http://www.slate.com/id/2086427/
- guelo 16y agoMy objection to this is that terrorist attacks are extremely rare events and there is not that much data about them so trading on this market would be very boring and you would almost always lose the boom bet. Anyway, anti-terrorism efforts seem like misplaced priorities, if you really want to save the lives of American you're better off working on ways to reduce car crashes or ways to stop people from eating cheeseburgers.
- gwern 16y agoThe markets were going to be about more long-term trends and political events - the sort of things analysts usually grapple with. This too is one of the common under-informed criticisms.
- guelo 16y agoTFA: "Under the plan, traders would buy and sell futures contracts on specific events such as terrorist attacks, based on whether they believed they would happen. " How do you make a bet on a long-term trend? What kind of long-term trends? Political events?
- gwern 16y ago> "In fact, however, PAM was not intended to forecast the details of terrorist attacks. It was instead intended to forecast aggregate measures of geopolitical stability in the Middle East. PAM would have used speculative markets to estimate economic growth, political stability, and military activity four times a year in each of eight nations, and how those measures would depend on each other and on various U.S. policy choices. PAMs designers thought their plan ambitious enough without also tackling the added complexities of predicting terrorism." -- http://hanson.gmu.edu/realterf.pdf http://hanson.gmu.edu/realterf.pdf (Hm, how would one estimate things like economic growth? That sounds really hard and my imagination just fails to think of any way to measure a long-term trend like that!)
- gwern 16y ago
- zzzmarcus 16y agoThere's a great book on this, and related Pentagon initiatives called The Watchers: http://www.amazon.com/Watchers-Rise-Americas-Surveillance-State/dp/1594202451 http://www.amazon.com/Watchers-Rise-Americas-Surveillance-St...
- Intrade 16y agowww.intrade.com has been listing geo-political markets such as markets on the fall of Iran, capture of Saddam, Bin Laden and others and markets on WMD since Y2K.