The Independent Institute's take on PAM

From: Freematt357@aol.com
Date: Tue Aug 05 2003 - 12:46:02 MDT

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    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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