Predictions of Terrorism
In 2001, the Defense Advanced Research Project Agency (DARPA) began a project which aimed to use market-based intelligence techniques to “improve existing approaches to preparing strategic intelligence” called FutureMAP. In that phrasing it sounds like a great idea, why not try to better predict events of terrorism? Two congressmen phrased it a different way, causing the project to be shut be down in the summer 2003. They accused DARPA of wasting taxpayer dollars on “terrorism betting parlors”.
The logic behind this made sense. In other situations betting markets had been overwhelmingly more correct when compared to the predictions of singular experts. Election results are well-predicted. Pharmaceutical companies have found that prediction markets predict drug research and developmental efforts very well. It then follows that predictions of actions and events in the Middle East could also be made. The format by which this was done followed exactly as we did in class (as seem in the image below). Events have certain probabilities and payoffs are determined based on the outcomes of each event. Some of the events to have predictions made included whether or not the US would recognize Palestine, or how long certain regimes would last.
Opponents of the system argued that this kind of market encouraged terrorist activity and involvement in the markets because they could directly profit from predicting events they helped to cause, though this was certainly not the intended result and because of the efforts of a few congressmen the project was shut down before much could come of it, so we won’t know how effective FutureMAP may have been.
https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/csi-studies/studies/vol50no4/using-prediction-markets-to-enhance-us-intelligence-capabilities.html
http://motherboard.vice.com/blog/the-pentagons-failed-terrorism-futures-market-is-now-a-ukranian-bookstore