Can the market predict terror?
With the fear of terror attacks on the rise after the terrible tragedies in Paris and elsewhere across the world, the United States is doing everything it can to keep this great country safe. The author of this article has a suggestion that could allow the government discern where a terrorist attack might occur with the help of market effects. Essentially, Stephen Carter wants to set up an environment where investors can bet and profit off of potential terror threats.
This idea is based on the concept of a prediction market. This market, also known as a decision market or an idea futures market, allows people to buy a contract that represents the probability of an event happening. Higher prices means that people think that the event is more likely to happen. Examples of prediction markets currently in place include the Iowa Electronic Markets (IEM). The IEM allows people to purchase contracts that predict the outcome of Iowa state elections. If a person buys a Democratic contract, they would get $1 if a Democrat wins the election, and $0 otherwise; there are similar options for the Republican contracts.
Now, with this in mind, why does Carter believe that this economic idea could help with terror prediction? Carter says that by adding the dimension of money, people would think about terrorism with their heads, rather than with their hearts. Therefore, Carter surmises, the results garnered from this market would be more rational, and the government can better deal and understand the imminent terror threats. The issue with the market proposal is on moral grounds. People were in uproar when this project was started back in 2003 complaining that investors could potentially turn a profit on terrorism, essentially stating that the US government had an open market on terrorism. Carter refutes this by claiming that the profits would be small to negligible, but even still, the project was scrapped very soon after its inception.
Should the Pentagon bring this market back? Maybe it could truly help with the terror problems, but maybe it could create them.
Sources:
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11549746