Pentagon Prepares a Futures Market on Terror Attacks
By CARL HULSE
New York Times
WASHINGTON, July 28 � The Pentagon office that proposed spying electronically on Americans to monitor potential terrorists has a new experiment. It is an online futures trading market, disclosed today by critics, in which anonymous speculators would bet on forecasting terrorist attacks, assassinations and coups.
Traders bullish on a biological attack on Israel or bearish on the chances of a North Korean missile strike would have the opportunity to bet on the likelihood of such events on a new Internet site established by the Defense Advanced Research Projects Agency.
The Pentagon called its latest idea a new way of predicting events and part of its search for the "broadest possible set of new ways to prevent terrorist attacks." Two Democratic senators who reported the plan called it morally repugnant and grotesque. The senators said the program fell under the control of Adm. John M. Poindexter, President Ronald Reagan's national security adviser.
One of the two senators, Byron L. Dorgan of North Dakota, said the idea seemed so preposterous that he had trouble persuading people it was not a hoax. "Can you imagine," Mr. Dorgan asked, "if another country set up a betting parlor so that people could go in � and is sponsored by the government itself � people could go in and bet on the assassination of an American political figure?"
After Mr. Dorgan and his fellow critic, Ron Wyden of Oregon, spoke out, the Pentagon sought to play down the importance of a program for which the Bush administration has sought $8 million through 2005. The White House also altered the Web site so that the potential events to be considered by the market that were visible earlier in the day at www.policyanalysismarket.org could no longer be seen.
But by that time, Republican officials in the Senate were privately shaking their heads over the planned trading. One top aide said he hoped that the Pentagon had a good explanation for it.
The Pentagon, in defending the program, said such futures trading had proven effective in predicting other events like oil prices, elections and movie ticket sales.
"Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information," the Defense Department said in a statement. "Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions."
According to descriptions given to Congress, available at the Web site and provided by the two senators, traders who register would deposit money into an account similar to a stock account and win or lose money based on predicting events.
"For instance," Mr. Wyden said, "you may think early on that Prime Minister X is going to be assassinated. So you buy the futures contracts for 5 cents each. As more people begin to think the person's going to be assassinated, the cost of the contract could go up, to 50 cents.
"The payoff if he's assassinated is $1 per future. So if it comes to pass, and those who bought at 5 cents make 95 cents. Those who bought at 50 cents make 50 cents."
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.
The initiative, called the Policy Analysis Market, is to begin registering up to 1,000 traders on Friday. It is the latest problem for the advanced projects agency, or Darpa, a Pentagon unit that has run into controversy for the Terrorism Information Office. Admiral Poindexter once described a sweeping electronic surveillance plan as a way of forestalling terrorism by tapping into computer databases to collect medical, travel, credit and financial records.
Worried about the reach of the program, Congress this year prohibited what was called the Total Information Awareness program from being used against Americans. Its name was changed to the Terrorism Information Awareness program.
This month, the Senate agreed to block all spending on the program. The House did not. Mr. Wyden said he hoped that the new disclosure about the trading program would be the death blow for Admiral Poindexter's plan.
The Pentagon did not provide details of the program like how much money participants would have to deposit in accounts. Trading is to begin on Oct. 1, with the number of participants initially limited to 1,000 and possibly expanding to 10,000 by Jan. 1.
"Involvement in this group prediction process should prove engaging and may prove profitable," the Web site said.
The overview of the plan said the market would focus on the economic, civil and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria and Turkey and the consequences of United States involvement with those nations. The creators of the market envision other trappings of existing markets like derivatives.
In a statement, Darpa said the trading idea was "currently a small research program that faces a number of major technical challenges and uncertainties."
"Chief among these," the agency said, "are: Can the market survive and will people continue to participate when U.S. authorities use it to prevent terrorist attacks? Can futures markets be manipulated by adversaries?"
Mr. Dorgan and Mr. Wyden called for an immediate end to the project and said they would use its existence to justify cutting off financial support for the overall effort. In the letter to Admiral Poindexter, they called the initiative a "wasteful and absurd" use of tax dollars.
"The American people want the federal government to use its resources enhancing our security, not gambling on it," the letter said.
Pentagon defends 'terror market'
Tuesday, July 29, 2003 Posted: 7:26 AM EDT (1126 GMT)
AP
Senators Dorgan and Wyden criticize Pentagon's plans for terror market at Washington news conference
WASHINGTON (AP) -- The Pentagon views it as a potentially innovative way to get clues about terrorists' plans: a public, stock market-style exchange where traders can profit by correctly predicting terror attacks or assassinations in the Middle East.
But two Democratic senators say the program is useless, offensive and immoral. They are demanding that the program be stopped before investors start signing up Friday.
"The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque," Sen. Ron Wyden, an Oregon Democrat, said Monday.
The program is called the Policy Analysis Market. The Pentagon office overseeing it, the Defense Advanced Research Projects Agency, or DARPA, said it was part of a research effort "to investigate the broadest possible set of new ways to prevent terrorist attacks."
Traders would buy and sell futures contracts -- just like energy traders do now in betting on the future price of oil. But the contracts in this case would be based on what might happen in the Middle East in terms of economics, civil and military affairs or specific events, such as terrorist attacks.
Holders of a futures contract that came true would collect the proceeds of traders who put money into the market but predicted wrong.
A graphic on the market's Web page Monday showed hypothetical futures contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown.
Although the Web site described the Policy Analysis Market as a Middle East market, the graphic also included the possibility of a North Korea missile attack.
That graphic apparently was removed from the Web site hours after the news conference in which Wyden and fellow Democratic Sen. Byron Dorgan of North Dakota criticized the market.
Market called 'unbelievably stupid'
Dorgan described the market as "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.
But in its statement Monday, DARPA said markets could reveal "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."
According to its Web site, the Policy Analysis Market would be a joint program of 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 been criticized by Congress for its Terrorism Information Awareness program, a computerized surveillance program that has raised privacy concerns. Wyden said the Policy Analysis Market is under the supervision of retired Adm. John Poindexter, the head of the Terrorism Information Awareness program and, in the 1980s, national security adviser to President Ronald Reagan.
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.
Trading is to begin October 1. The market would initially be limited to 1,000 traders, increasing to at least 10,000 by January 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."
"The rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise," the FutureMap Web site said.
Dorgan and Wyden released a letter to Poindexter calling for an end to the program. They noted a May 20 report to lawmakers that cited the possibility of using market forces to predict whether Israel will be attacked 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.
Pentagon Terror Exchange Prompts Betting In France
By GREG KELLER
Of DOW JONES NEWSWIRES
PARIS -- Criticism of the Pentagon's plans to open a stock-market style exchange where traders can wager on the likelihood of terrorist attacks has thrown the project's fate into doubt even before it has a chance to start taking bets.
But France's Newsfutures.com, which has been running a similar online exchange for the past three years, is already offering the project's fans and critics a chance to bet on whether the Pentagon's program will actually get off the ground.
Within hours of first reading news reports Tuesday of the Pentagon's Policy Analysis Market, Newsfutures co-founder and President Emile Servan-Schreiber had opened two virtual futures markets relating to the Pentagon's far-fetched experiment.
One market tracks the probability that the PAM will start registering traders as planned Aug. 1, and the second charts the chance that the project's supervisor, retired Adm. John Poindexter, will be fired by the end of the year.
On the Pentagon exchange, traders would buy and sell futures contracts - just like energy traders do in betting on the future price of oil. But the contracts in this case would be based on what might happen in the Middle East in terms of economics, civil and military affairs or specific events, such as terrorist attacks.
Information exchanges, as they're called, have their uses, said Servan-Schreiber, 40, who added that they "can collect and synthesize the consensus of experts around an issue." Another well-known exchange is the Tradesports.com site based in Ireland.
The Pentagon's terror exchange sparked criticism Monday after it was disclosed by two Democratic senators.
"The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque," said Sen. Ron Wyden, an Oregon Democrat.
The Defense Advanced Research Projects Agency, the Pentagon office overseeing the program, called it a way "to investigate the broadest possible set of new ways to prevent terrorist attacks," and said it could reveal "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 opinion," the DARPA said in a statement.
Servan-Schreiber, who set up Newsfutures.com in 2000, agreed - to an extent.
The PAM idea "is farsighted and smart - but some of the things they're doing are going to give all of us working in information exchanges bad publicity," Servan-Schreiber said.
"You have to stay somewhat tasteful" on the topics put up for betting, he said. For example, when a sniper terrorized the Washington, D.C., area last summer, "we had a market on whether the sniper would be caught, but we didn't take any bets on whether he'd kill someone that week."
According to news reports, examples of the kinds of bets the Pentagon's exchange will take include whether Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown.
Servan-Schreiber said markets in these kinds of subjects risks "encouraging political assassinations or biological attacks."
Unlike the Pentagon's exchange, Newsfutures doesn't offer the chance to win money, only prizes.
The site attracts around 4,000 regular traders to its site, mainly from the U.S. and France, Servan-Schreiber said. The site makes money by licensing its "Prediction Trader" software to news organizations and companies interested in running program's like the Pentagon's.
"We've also started to focus on leveraging this technology for business intelligence," for example with markets on the future of the pharmaceutical industry, Servan-Schreiber said.
Daschle Joins Critics Of Pentagon Terrorism-Futures Plan
DOW JONES NEWSWIRES
WASHINGTON (AP)--The Senate's Democratic leader called on the Bush administration Tuesday to renounce a Pentagon plan for establishing a futures market on acts of terrorism and said apologies should be made to the families of victims of the Sept. 11 attacks.
"This program could provide an incentive actually to commit acts of terrorism," Sen. Tom Daschle, D-S.D., declared on the Senate floor. "...This is just wrong."
Daschle called the proposal a "plan to trade in death" and charged it could motivate terrorists to attempt attacks on targets in the U.S. or against U.S. leaders. "It is perhaps the most irresponsible, outrageous and poorly thought out of anything I have heard from the administration," he said.
The Pentagon plan outlines a potential futures trading market in which speculators would wager on the Internet on the likelihood of a future terrorist attack or assassination attempt on a particular leader. Daschle said a Web site promoting the plan already is available. Pentagon officials, when the plan was disclosed Monday, defended it as a way to gain intelligence about potential terrorists' plans.
The program is called the Policy Analysis Market. The Pentagon office overseeing it, the Defense Advanced Research Projects Agency, or DARPA , said it was part of a research effort "to investigate the broadest possible set of new ways to prevent terrorist attacks."
Traders would buy and sell futures contracts - just like energy traders do now in betting on the future price of oil. But the contracts in this case would be based on what might happen in the Middle East in terms of economics, civil and military affairs or specific events, such as terrorist attacks.
Holders of a futures contract that came true would collect the proceeds of traders who put money into the market but predicted wrong.
Sens. Ron Wyden, D.-Ore., and Byron Dorgan, D-N.D., demanded Monday that the project be stopped.
US Senators: Pentagon Plan Would Allow Betting On Terror
DOW JONES NEWSWIRES
WASHINGTON (AP)--The Pentagon 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.
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, 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 reevaluation 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 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 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 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, 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.
Pentagon Abandons Plan for Futures Market on Terror
By CARL HULSE
The New York Times
WASHINGTON, July 29 - The Pentagon office that proposed spying electronically on Americans to monitor potential terrorists has quickly abandoned an idea in which anonymous speculators would have bet on forecasting terrorist attacks, assassinations and coups in an online futures market.
Senator John W. Warner, the Virginia Republican who heads the Senate Armed Services Committee, said today that he had conferred with the program's director at the Pentagon, ``and we mutually agreed that this thing should be stopped.''
The senator's announcement - made during a confirmation hearing for retired Gen. Peter J. Schoomaker, who has been nominated to be Army chief of staff - signaled the end of a program that was met with astonishment and derision almost from the moment it was disclosed.
Under the discarded plan, traders bullish on a biological attack on Israel, say, or bearish on the chances of a North Korean missile strike would have had the opportunity to bet on the likelihood of such events on a new Internet site established by the Defense Advanced Research Projects Agency.
The Pentagon called its latest idea a new way of predicting events and part of its search for the ``broadest possible set of new ways to prevent terrorist attacks.'' But two Democratic senators who disclosed the plan on Monday called it morally repugnant and grotesque. The senators said the program fell under the control of Adm. John M. Poindexter, President Ronald Reagan's national security adviser.
One of the two senators, Byron L. Dorgan of North Dakota, said the idea seemed so preposterous that he had trouble persuading people it was not a hoax. ``Can you imagine,'' Mr. Dorgan asked, ``if another country set up a betting parlor so that people could go in - and is sponsored by the government itself - people could go in and bet on the assassination of an American political figure?''
After Mr. Dorgan and his fellow critic, Ron Wyden of Oregon, spoke out, the Pentagon sought to play down the importance of a program for which the Bush administration has sought $8 million through 2005. The White House also altered the Web site so that the potential events to be considered by the market that were visible earlier in the day at www.policyanalysismarket.org could no longer be seen.
But by that time, Republican officials in the Senate were privately shaking their heads over the planned trading. One top aide said he hoped that the Pentagon had a good explanation for it.
The Pentagon, in initially defending the program, said such futures trading had proven effective in predicting other events like oil prices, elections and movie ticket sales.
``Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information,'' the Defense Department said in a statement. ``Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions.''
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.
``I must say this is perhaps the most irresponsible, outrageous and poorly thought-out of anything that I have heard the administration propose to date,'' said Senator Tom Daschle of South Dakota, the Democratic leader.
According to descriptions given to Congress, available at the Web site and provided by the two senators, traders who register would have deposited money into an account similar to a stock account and win or lose money based on predicting events.
``For instance,'' Mr. Wyden said, ``you may think early on that Prime Minister X is going to be assassinated. So you buy the futures contracts for 5 cents each. As more people begin to think the person's going to be assassinated, the cost of the contract could go up, to 50 cents.
``The payoff if he's assassinated is $1 per future. So if it comes to pass, and those who bought at 5 cents make 95 cents. Those who bought at 50 cents make 50 cents.''
The senators also suggested that terrorists could participate because the traders' identities will be unknown.
