Terrorist Prediction Markets
During the Clinton and Bush administrations, the Pentagon studied whether prediction markets, in which buyers could place bets on geopolitical trends, could provide valuable insights about the future. The idea behind prediction markets is that since betters place bets on what other people believe will happen, betters will make more rational predictions in the aggregate.
In theory, this prediction market would have covered eight countries, and betters would have bet on political and economic metrics. However, the prediction market was ended in 2003, never getting out of testing.
The idea behind prediction markets is that the “wisdom of crowds” can make accurate predictions of the future by aggregating rational beliefs. These beliefs are more rational than just polling people because there is a cost for betting, and because what you bet will depend on the price of the options, which depends on the beliefs of others. For example, if a pollster asks people what they think will happen, people will often just pick what they would like to happen. This is at least partially because there is no cost for guessing wrong. Additionally, prediction markets can be less biased than polling questions because how a question is worded can greatly bias poll results.
The reason for the cancelation was twofold. On the one hand, politicians were offended by the idea of investors earning profits off of things such as terrorist attacks. On the other, the fact that terrorists could have used the data from the markets to see where terror attacks were predicted least likely to happen, and then attacked those areas, would have posed a national security threat. Critics also argued that terrorists could conceivably even bet on those areas and then attack them to receive large payoffs.
Despite the ending of the official prediction market, companies in the private sector have filled the gap. Still, no private company has yet to reach the status that a government-run prediction market would have reached.
http://www.hickoryrecord.com/news/predicting-terrorism-through-the-power-of-markets/article_2defda5c-8fd5-11e5-ac16-93fb53f82895.html