Policy Analysis Market

Last updated

The Policy Analysis Market (PAM), part of the FutureMAP project, was a proposed futures exchange developed, beginning in May 2001, by the Information Awareness Office (IAO) of the United States Defense Advanced Research Projects Agency (DARPA), and based on an idea first proposed by Net Exchange, a San Diego, California, research firm specializing in the development of online prediction markets. [1] PAM was shut down in August 2003 after multiple US senators condemned it as an assassination and terrorism market, a characterization criticized in turn by futures-exchange expert Robin Hanson of George Mason University, and several journalists. Since PAM's closure, several private-sector variations on the idea have been launched.

Contents

Proposal

PAM was to be "a market in the future of the Middle East", and would have allowed trading of futures contracts based on possible political developments in several Middle Eastern countries. The theory behind such a market is that the monetary value of a futures contract on an event reflects the probability that that event will actually occur, since a market's actors rationally bid a contract either up or down based on reliable information. [2] [3] One of the models for PAM was a political futures market run by the University of Iowa, which had predicted US election outcomes more accurately than either opinion polls or political pundits. PAM was also inspired by the work of George Mason University economist Robin Hanson. [3] [4]

Opposition

At a July 28, 2003, press conference, US Senators Byron L. Dorgan (D-ND) and Ron Wyden (D-OR) claimed that PAM would allow trading in such events as coups d'états , assassinations, and terrorist attacks, due to such events appearing on interface pictures on the project website. "On the web site, as a backdrop to bold text, were faint background sample screens. In a small (less than 2 percent) section of two such screens, Polk had included as colorful examples of possible miscellaneous items an assassination of Yasser Arafat, a missile attack by North Korea, and the overthrow of the king of Jordan." [5]

They denounced the idea, with Wyden stating, "The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque", while Dorgan called it "useless, offensive and unbelievably stupid". [6] Other critics offered similar outrage. Within less than a day, the Pentagon announced the cancellation of PAM, and by the end of the week John Poindexter, head of the DARPA unit responsible for developing it, had offered his resignation. [7]

PAM had first been proposed and funded in 2001, [lower-alpha 1] Poindexter joined DARPA in December 2002, and Hanson claimed that Poindexter "actually had little involvement with PAM". [5]

Further developments

CNN reported the program would be relaunched by the private firm, Net Exchange, [3] that helped create it, but that the newer version "will not include any securities based on forecasts of violent events such as assassinations or terror attacks". [8]

On June 11, 2007, Popular Science launched a similar program, known as the PopSci Predictions Exchange. Another project was the American Action Market announced by Tad Hirsh of the MIT Media Lab in 2003, which would permit for-profit betting on major events.

There are now commercial policy-analysis markets that perform such functions. One, Intrade, had previously offered futures on events such as the capture of Osama bin Laden, the US Presidential Election, and the bombing of Iran. As of March 10, 2013, all trading had been suspended on Intrade's website due to undisclosed financial irregularities.

See also

Notes

  1. ↑ "DARPA's first call for proposals went out in May 2001 under the name "Electronic Market-Based Decision Support." The call basically said, 'We've heard this works elsewhere; show us it works for problems we care about.' Proposals were due in August, and by December two firms had won SBIR (small business independent research) grants." [5]

Related Research Articles

<span class="mw-page-title-main">DARPA</span> Agency of the U.S. Department of Defense

The Defense Advanced Research Projects Agency (DARPA) is a research and development agency of the United States Department of Defense responsible for the development of emerging technologies for use by the military.

In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the underlying. Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.

<span class="mw-page-title-main">George Mason University</span> Public research university in Fairfax, Virginia

George Mason University is a public sea-grant research university in Fairfax County, Virginia near Washington, D.C. The university was originally founded as the Northern Virginia University Center of the University of Virginia in 1949 as an extension school and regional branch of the University of Virginia for mid-career working professionals and non-traditional students in Northern Virginia and the Washington, D.C. Metropolitan Area. The university has since expanded into a residential college for traditional students with an emphasis on combining modern practice-based professional education with a comprehensive traditional liberal arts curriculum while maintaining its historic commuter student-inclusive environment at both undergraduate and post-graduate levels. The university operates four campuses in Virginia in Fairfax, Arlington, Front Royal, and Prince William Counties. It also operates a retreat and conference center in Lorton and an international campus in Incheon, South Korea. The university's flagship campus is in Fairfax, Virginia.

<span class="mw-page-title-main">John Poindexter</span> Retired American naval officer and Department of Defense official

John Marlan Poindexter is a retired United States naval officer and Department of Defense official. He was Deputy National Security Advisor and National Security Advisor during the Reagan administration. He was convicted in April 1990 of multiple felonies as a result of his actions in the Iran–Contra affair, but his convictions were reversed on appeal in 1991. During the George W. Bush administration, he served a brief stint as the director of the DARPA Information Awareness Office. He is the father of NASA astronaut and U.S. Navy Captain Alan G. Poindexter.

<span class="mw-page-title-main">Information Awareness Office</span> DARPA division overseeing the "Total Information Awareness" program

The Information Awareness Office (IAO) was established by the United States Defense Advanced Research Projects Agency (DARPA) in January 2002 to bring together several DARPA projects focused on applying surveillance and information technology to track and monitor terrorists and other asymmetric threats to U.S. national security by achieving "Total Information Awareness" (TIA).

<span class="mw-page-title-main">Total Information Awareness</span> US mass detection program

Total Information Awareness (TIA) was a mass detection program by the United States Information Awareness Office. It operated under this title from February to May 2003 before being renamed Terrorism Information Awareness.

Prediction markets, also known as betting markets, information markets, decision markets, idea futures or event derivatives, are open markets that enable the prediction of specific outcomes using financial incentives. They are exchange-traded markets established for trading bets in the outcome of various events. The market prices can indicate what the crowd thinks the probability of the event is. A typical prediction market contract is set up to trade between 0 and 100%. The most common form of a prediction market is a binary option market, which will expire at the price of 0 or 100%. Prediction markets can be thought of as belonging to the more general concept of crowdsourcing which is specially designed to aggregate information on particular topics of interest. The main purposes of prediction markets are eliciting aggregating beliefs over an unknown future outcome. Traders with different beliefs trade on contracts whose payoffs are related to the unknown future outcome and the market prices of the contracts are considered as the aggregated belief.

<span class="mw-page-title-main">Robin Hanson</span> American economist and author

Robin Dale Hanson is an associate professor of economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. He is known for his work on idea futures and markets, and he was involved in the creation of the Foresight Institute's Foresight Exchange and DARPA's FutureMAP project. He invented market scoring rules like LMSR used by prediction markets such as Consensus Point, and has conducted research on signalling.

<span class="mw-page-title-main">Thomas P. M. Barnett</span> American geostrategist

Thomas P. M. Barnett is an American military geostrategist and former chief analyst at Wikistrat. He developed a geopolitical theory that divided the world into "the Functioning Core" and the "Non-Integrating Gap" that made him particularly notable prior to the 2003 U.S. Invasion of Iraq when he wrote an article for Esquire in support of the military action entitled "The Pentagon's New Map". The central thesis of his geopolitical theory is that the connections the globalization brings between countries are synonymous with those countries with stable governments, rising standards of living, and "more deaths by suicide than by murder". These regions contrast with those where globalization has not yet penetrated, which is synonymous with political repression, poverty, disease, and mass-murder, and conflict. These areas make up the Non-Integrating Gap.

<span class="mw-page-title-main">Futures studies</span> Study of postulating possible, probable, and preferable futures

Futures studies, futures research, futurism, or futurology is the systematic, interdisciplinary and holistic study of social/technological advancement, and other environmental trends; often for the purpose of exploring how people will live and work in the future. Predictive techniques, such as forecasting, can be applied, but contemporary futures studies scholars emphasize the importance of systematically exploring alternatives. In general, it can be considered as a branch of the social sciences and an extension to the field of history. Futures studies seeks to understand what is likely to continue and what could plausibly change. Part of the discipline thus seeks a systematic and pattern-based understanding of past and present, and to explore the possibility of future events and trends.

<i>The Wisdom of Crowds</i> 2004 book by James Surowiecki

The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, published in 2004, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology.

<span class="mw-page-title-main">Project Genoa</span>

Project Genoa was a software project commissioned by the United States' DARPA which was designed to analyze large amounts of data and metadata to help human analysts counter terrorism.

<span class="mw-page-title-main">Iowa Electronic Markets</span> Not-for-profit group of futures markets

The Iowa Electronic Markets (IEM) are a group of real-money prediction markets/futures markets operated by the University of Iowa Tippie College of Business. Unlike normal futures markets, the IEM is not-for-profit; the markets are run for educational and research purposes.

Prediction markets company NewsFutures (2000-2010) evolved into Lumenogic (2010-2019), "a consulting firm that specializes in developing and customizing online systems for large organizations to use to gather so-called Collective Intelligence from their employees", which in turn became Hypermind (2019-).

Intrade.com was a web-based trading exchange whose members "traded" contracts between each other on the probabilities of various events occurring. After having been forced to exclude US traders in 2012, on 10 March 2013 Intrade suspended all trading, citing possible "financial irregularities". For a time after the suspension, the intrade.com website stated that they were working on a relaunch of the site, called "Intrade 2.0", but as of August 2014 it states that "It appears very unlikely now that Intrade will resume trading services in the way it had operated previously", and announced plans to close all accounts and refund monies by 31 December 2014.

The dumb agent theory (DAT) states that many people making individual buying and selling decisions will better reflect true value than any one individual can. In finance this theory is predicated on the efficient-market hypothesis (EMH). One of the first instances of the dumb agent theory in action was with the Policy Analysis Market (PAM); a futures exchange developed by DARPA. While this project was quickly abandoned by the Pentagon, its idea is now implemented in futures exchanges and prediction markets such as Intrade, Newsfutures and Predictify. The DAT is technically a hypothesis, not a theory.

Cyber Insider Threat, or CINDER, is a digital threat method. In 2010, DARPA initiated a program under the same name to develop novel approaches to the detection of activities within military-interest networks that are consistent with the activities of cyber espionage.

Bet2Give.com was an online prediction market company started in 2007 by Émile Servan-Schreiber and Maurice Balick, as an offshoot to their NewsFutures. Bet2Give's premise was that having the winnings going automatically to a charity of the winner's choice wouldn't seriously interfere with the efficacy of the prediction market. Servan-Schreiber had conducted research a few years earlier into whether betting with "play money" reduced prediction market accuracy, with encouraging results.

SciCast is a collaborative platform for science and technology forecasting created by George Mason University with the help of a grant from the Intelligence Advanced Research Projects Activity (IARPA) as part of its ForeST program. SciCast is currently on hiatus, after losing its main IARPA funding. It was expected to re-open in the fall of 2015 with the support of a major Science & Technology sponsor, but this had not occurred by January 2016.

PredictIt is a New Zealand-based online prediction market that offers exchanges on political and financial events. PredictIt is owned and operated by Victoria University of Wellington with support from Aristotle, Inc. The company's office is located in Washington, D.C.

References

  1. ↑ "Programs: FutureMap". Information Awareness Office, United States Defense Advanced Research Projects Agency. 2003. Archived from the original on April 22, 2012. Retrieved October 29, 2019– via InfoWar.net. This is an archive of the official FutureMap and PAM webpage, which was eventually taken offline by DARPA.
  2. ↑ Hulse, Carl (July 29, 2003). "Threats and Responses: Plans and Criticisms; Pentagon Prepares a Futures Market on Terror Attacks". The New York Times . Retrieved October 29, 2019.
  3. 1 2 3 Lundin, Leigh (July 7, 2013). "PAM, PRISM, and Poindexter". SleuthSayers: Professional Crime-Writers and Crime-Fighters. Washington, DC. Retrieved January 4, 2014.
  4. ↑ "Policy Analysis Market and the Political Yuck Factor – why Americans shied away from a geopolitical futures market". SIRC.org. Social Issues Research Centre. 2004. Retrieved October 29, 2019.
  5. 1 2 3 Hanson, Robin (August 2007). "The Policy Analysis Market (A Thwarted Experiment in the Use of Prediction Markets for Public Policy)". Innovations: Technology, Governance, Globalization. 2 (3): 73–88. doi: 10.1162/itgg.2007.2.3.73 . S2CID   57563194.
  6. ↑ Lee, Newton (April 7, 2015). "6". Counterterrorism and Cybersecurity: Total Information Awareness (Second ed.). Springer. p. 146. ISBN   978-3-319-17244-6 . Retrieved November 17, 2022.
  7. ↑ "Poindexter to Leave Pentagon Research Job". The Washington Post . July 31, 2003. Archived from the original on August 5, 2012. Retrieved September 8, 2017.
  8. ↑ Gongloff, Mark (November 17, 2003). "Middle East futures market returns. Private firm will restart Pentagon project, but without contracts for violence, in 2004". CNN.com . Time Warner . Retrieved July 16, 2006.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.