The Furor Over 'Terrorism Futures' (WP)

[lkinsale]

http://www.washingtonpost.com/wp-dyn/articles/A5696-2003Jul30.html

Betting on human lives seems ethically questionable. Yet if it helps save lives, surely the moral questions are mitigated. Not so, according to those in Congress (and elsewhere) who created such a furor this week over a planned Pentagon program to project geopolitical risks that the program was quickly shut down. The plan was to use markets to "price" such risks, and it was quickly dubbed a "terrorism futures market." Unfortunately, in hastily ending this program, the government may be closing the door on an important source of information and a promising avenue for research.

<snip>

Financial markets are incredibly powerful aggregators of information, and are often better predictors than traditional methods. The examples are numerous. The futures market in orange juice concentrate is a better predictor of Florida weather than the National Weather Service. The Iowa Electronic Markets outperform the opinion polls in predicting presidential election vote shares. Hewlett Packard ran a market forecasting printer sales that outpredicted any of its analysts. The Defense Department should be applauded for admitting to its own limitations. Last winter we studied a market in "Saddam Securities" that proved to be a good predictor of the probability of war in Iraq.

The reason markets work so well is that they reflect our collective wisdom. And your opinion will be reflected only to the extent that you are willing to put your money where your mouth is.

*****

My God, what a load of immoral bosh. Aside from the fact that the "markets" don't predict anything (as much as those chalkboard guys would love to claim they do, cause it's their job), it is an utterly disgusting idea.

By the way, when the National Weather Service gave an award for the forecaster who had the best history of accurately predicting the weather, it went to some guy in a little town in Montana. His secret? He always predicted that tomorrow's weather would be the same as today's.

[Enraged_Ape]

1. A plastic Santa Claus could do (and has done) a better job

I remember when a plastic, wind-up Santa beat a bunch of other analysts at picking stocks. Here's the article:

http://www.globeinvestor.com/servlet/WireFeedRedirect?cf=GlobeInvestor/config&date=20010113&slug=STMAIN&archive=networth

I.e., if the guy who wrote this particular editorial really thinks markets are a reliable model for forecasting other things like terrorist activity, he's nuts. Otherwise, he's just evil.

[bemildred]

2. "Financial markets are incredibly powerful aggregators of information"

Ha ha ha ha ha ha ha ha ha ...
Faith based economics.
Show me a peer-reviewed double blind study that shows they
work better than flipping a coin.

They sure predicted their own plunge into the toilet these
last three years accurately in the late 90s, didn't they?
:puke: