Wednesday, July 30, 2003

Information Markets for Fighting Terrorism

A few months ago I had a post describing information markets, a system of buying and selling securities that pay off if a given future event happens. Based on the price of a security, one can get an estimate of the probability that that event will occur. Studies have shown that information markets are better predictors than polls or experts.

Information markets have taken a blow in the past few days. The US Department of Defense has cancelled a program that would have set up limited futures markets on securities based on terroristic activities. They bowed to pressure from senators who consider it morally wrong to bet on events on future terrorist attacks. I understand their concerns but computer scientists and economists have produced what could have been a powerful tool in controlling terrorism and it is quite a shame to see it discarded so easily.

David Pennock sent me some links on a more positive point of view from CNN, Fortune and Wired and a fun CNN piece on the Tradesports Poindexter future.

Update (8/1): A well-written New York Times column A Good Idea with Bad Press and a nicely argued opinion piece by David Pennock.

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