The Futures (not) So Bright (at DARPA)
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By jank - Last updated: Thursday, July 31, 2003 - Save & Share - 3 Comments

There are some ideas that just shouldn’t be bandied around in public. The DARPA Futures market was one of them. That’s not to say it wasn’t a brilliant idea; IMO it was. However, it’s an idea that is going to seem nearly as cruel to the average American as clubbing baby seals.

NRO ran a pretty decent bit on this today; I just wanted to throw in my two cents.


Markets aren’t perfect by any means. 1929 and 2001 showed that clearly. As entities that are made up entirely of human beings, they will occasionally need an extremely large ‘correction’ to get back on track. (We’re also about to see a pretty big positive ‘correction’ to make up for a year of underselling. Watch the 401K grOW!)

But, markets are efficient ways to compile disparate sources of information about anything and come up with an easily interpretable outcome. Enron is discovered lying about its finances? Worthless. War in the middle east? Maybe it will shut down oil production – Oil futures become more expensive, meaning that people are betting that the price will go up.

We’ve been using futures markets to predict prices on darn near everything since the turn of the last century. You can even buy an Financial Instrument that will pay off depending on the weather in a certian city. If the markets didn’t work, people wouldn’t use them.

Bookies go through much the same analysis when they try to figure out how to put odds on sporting events. If the line on a given game is off, bettors will load on money until the bookies need to adjust the line to more accurately reflect the probable outcome of the game.

The biggest objection that I have heard made against a Terrorism futures market is ‘How can you put a price on human life?’ The answer is apparently pretty easy – life insurance companies have been doing it for centuries. What is a malpractice insurance premium other than a way to quantify the possibility that a certian pool of doctors is going to tragically screw up a patient’s life?

I’ve also heard that the terrorist organizations may go ahead and put money on whatever terror prospect they’re about to commit so they can benefit financially from their acts. There is nothing stopping them from doing that right now. If you’d short sold the DJIA or the S&P prior to 9/11, you would have made out like a bandit.

What bugs me about this is seeing an innovative idea shot down before folks have a chance to actually think about it.

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3 Responses to “The Futures (not) So Bright (at DARPA)”

Comment from etrigan
Time July 31, 2003 at 8:14 pm

Wow! Kismet!

This is exactly the conversation Becky and I had at dinner. This is a brilliant idea. John Poindexter should not have to resign over this. It was stupid (SOOO STUPID!) to release this kind of thing to the public without some kind of filter (or “misdirection”), but any tool that might be used to monitor or predict terrorist activity in such a simple-to-graph manner is awesome.

Comment from jank
Time July 31, 2003 at 10:17 pm

That’s the beauty of government funded research labs. Smart folks get a chance to run thought experiments like this without necessarily having to have a saleable (spellcheck doesn’t like that, might ought to say sellable, but I like the other) product.

I could only imagine DARPA’s funding for the internet being discussed in the current political climate –

Senator A: So let me get this straight – you want to let the military’s computers be able to talk to each other in a way that ensures survivability after a nuclear war. Isn’t this an incentive for the warmongers in the White House to launch a preemptive strike against the USSR?

Researcher: No, no, no, but plann…

Senator B: And I’m concerned that this project is just a handout to the upper class and military contracts. How is this going to benefit the less fortunate?

Researcher: Less fortunate? I work for a military think tank, not a…

Senator C: And what is this costing the taxpayers? Millions of dollars?

Researcher: Yeah, it’s a couple million a year, but the effects are widespread. We’re going to completely revolutionize communications…

Senator A: And with open sources, all of this information will be available to our enemies…

Comment from cynsmith
Time August 1, 2003 at 11:39 am

There was an excellent article yesterday in the Post, I think, about DARPA. But really – John Poindexter has no business being on the US Gov’t payroll in any form or fashion. Good riddance.

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