From: Freematt357@aol.com
Date: Tue Aug 05 2003 - 12:46:02 MDT
THE LIGHTHOUSE, the weekly e-mail newsletter of The Independent Institute,
the non-politicized public-policy research organization. "Enlightening Ideas
for Public Policy..."
http://www.independent.org/tii/lighthouse/Lighthouse.html.
Excerpted via :Vol. 5, Issue 31, August 4, 2003
PENTAGON SCRAPS INFORMATION MARKET
Even those who understandably scorned the Pentagon's recently
cancelled Policy Analysis Market (PAM) -- a.k.a. the terrorism
futures market, as some detractors called it -- should admit that it
was innovative in a badly needed way.
In proposing a virtual market to help predict contingencies in the
Middle East and elsewhere, PAM set out to achieve what years of
pseudo-reform of U.S. military and intelligence agencies had failed
even to attempt -- to bypass the hierarchical bureaucracy that has
led to numerous deadly intelligence failures.
By making use of the knowledge of thousands of people willing to put
their money on the line (maximum bet: $100), PAM was based on the
insight that markets, driven by economic actors with powerful
incentives to guess correctly, often know better than a handful of
professional prognosticators. This point has been well illustrated by
the web-based Iowa Political Stock Market, a virtual market that has
consistently predicted election outcomes more accurately than
pollsters.
Because PAM was controversial for more than one reason, it should not
be surprising that it was misrepresented by politicians and the media.
"Contrary to impressions in the media, the primary purpose of the PAM
was not to predict individual events of terrorism but rather to
predict inputs into terrorism such as the economic growth rates of
countries in the Middle East, political instability, and military
activity," write Alexander Tabarrok, research director of the
Independent Institute, and Robin Hanson, the principal architect of
the Policy Analysis Market, in a new op-ed.
Rather, write Tabarrok and Hanson, PAM was to help answer such
questions as "What would happen to unrest in the Middle East if the
US withdrew its troops in Saudi Arabia" and "How would Jordan fare
politically if the 'roadmap' were successfully implemented?"
Recent history suggests that traditional approaches to such
questions, even if well-informed, can become ignored or politicized.
"The yes-man phenomena means that information doesn't rise from the
field to the decision-makers," write Tabarrok and Hanson. "And
sometimes the bosses don't want to hear what the field has to say.
Remember the CIA and FBI analysts who repeatedly tried to signal
their worries about terrorism to their superiors but were rebuffed?
In contrast, a PAM would produce a public and easily understood
number that would be difficult to ignore."
Fortunately, the future of such "information markets," "prediction
aggregators," or "idea futures" doesn't rest on government funding
and would be managed better without it. A few visionary institutions,
such as Hewlett-Packard, have already used them to aid in
decision-making, and many more will be adopted. But as with so many
innovations, don't expect the government to employ them effectively
for a long, long time.
See "Another Intelligence Failure," by Alexander Tabarrok and Robin
Hanson (8/4/03)
http://www.independent.org/tii/news/030804Tabarrok.html
Also see, "Decision Markets," by Robin Hanson. Chapter 5 in
ENTREPRENEURIAL ECONOMICS: Bright Ideas from the Dismal Science,
edited by Alexander Tabarrok. Information on ENTREPRENEURIAL
ECONOMICS can be found at
http://www.EntrepreneurialEconomics.org.
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