Question

The Market for Terrorism "It is vitally important for the United States to anticipate and possibly offset future terrorist attacks. Similarly, it is necessary to know whether certain government leaders might be overthrown or what developments in other parts of the world might occur such as Russia invading Georgia or Poland. How can such information be obtained? Could markets be used? A few people thought the best method would be to create a market whereby people could speculate on certain events and could profit from correct predictions. The Defense Advanced Research Projects Agency (DARPA), a research think tank within the Department of Defense, decided to create a market through which traders could buy and sell contracts that specified various events. For example, contracts could be based on questions such as ‘How fast will the non-oil output of Egypt grow next year?’ or ‘Will the U.S. military withdraw from country A in two years or less?’ The concept was to discover whether trading in such contracts could help to predict future events and how connections between events were perceived. Critics tore into DARPA for creating a way to bet on terrorism. It was argued that a terrorist could bet on some act of terrorism and then carry it out, thereby profiting on tragedy. Once people started to hear about the DARPA project, funding was cut and all research related to it was terminated. What information can markets provide that spies, informants and others might not? How could a market provide information about terrorism?"

Answer 1

Markets can provide information that spies, informants, and others might not be able to. A market for terrorism, or any other event, would allow traders to buy and sell contracts based on their predictions of future events. The prices of these contracts would reflect the market's expectation of the likelihood of those events happening.

Step-by-step explanation:

Markets can provide information that spies, informants, and others might not be able to because they reflect the collective knowledge and opinions of a large number of participants. A market for terrorism, or any other event, would allow traders to buy and sell contracts based on their predictions of future events. The prices of these contracts would reflect the market's expectation of the likelihood of those events happening.

For example, if there is a high demand for contracts speculating on a terrorist attack in a particular country, it could indicate that there is an increased perception of the likelihood of such an attack happening.

Additionally, markets have the potential to provide valuable information about terrorism by analyzing the connections and relationships between different events. By examining the prices and trading patterns of contracts related to various events, analysts can gain insights into how events are perceived to be connected and how they might impact each other.