Fury over Pentagon 'bets on terror' project

The Pentagon is setting up a commodity market-style trading system in which investors would be able to bet on political and economic events in the Middle East – including the likelihood of assassinations and terrorist attacks.

But two Democratic senators said last night they wanted the project stopped before investors began registering this week.

The Pentagon office overseeing the programme said it was part of a research effort “to investigate the broadest possible set of new ways to prevent terrorist attacks”. It said there would be a re-evaluation before more money was committed.

The Policy Analysis Market is intended to help the Pentagon predict events in the region based on investors’ information or analyses.

A graphic on the market’s web page showed hypothetical futures contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown.

Although the website described the Policy Analysis Market as “a market in the future of the Middle East,” the graphic also included the possibility of a North Korea missile attack.

That graphic was apparently removed from the website hours after the news conference by Sens Ron Wyden of Oregon and Byron Dorgan of North Dakota criticising the market.

“The idea of a federal betting parlour on atrocities and terrorism is ridiculous and it’s grotesque,” Wyden said.

Dorgan described it as useless, offensive and “unbelievably stupid”.

“Can you imagine if another country set up a betting parlour so that people could go in ... and bet on the assassination of an American political figure, or the overthrow of this institution or that institution?” he said.

According to its website, the Policy Analysis Market would be a joint programme of the Pentagon’s Defence Advanced Research Projects Agency, known as DARPA, and two private companies: Net Exchange, a market technologies company, and the Economist Intelligence Unit, the business information arm of the publisher of The Economist magazine.

DARPA has received strong criticism from Congress for its Terrorism Information Awareness programme, a computerised surveillance programme that has raised privacy concerns. Wyden said the Policy Analysis Market was under retired Admiral John Poindexter, the head of the Terrorism Information Awareness programme and, in the 1980s, a key figure in the Iran-Contra scandal.

In its statement today, DARPA said that markets offered efficient, effective and timely methods for collecting “dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions”.

The description of the market on its website makes it appear similar to a computer-based commodities market. Contracts would be available based on economic health, civil stability, military disposition and US economic and military involvement in Egypt, Iran, Iraq, Israel, Jordan, Saudi Arabia, Syria and Turkey.

Contracts would also be available on “global economic and conflict indicators” and specific events, for example US recognition of a Palestinian state.

Traders who believe an event will occur can buy a futures contract. Those who believe the event is unlikely can try to sell a contract. The website does not address how much money investors would be likely to put into the market but says analysts would be motivated by the “prospect of profit and at pain of loss” to make accurate predictions.

Registration would begin on Friday with trading beginning on October 1. The market would initially be limited to 1,000 traders, increasing to at least 10,000 by Jan. 1.

The website says government agencies will not be allowed to participate and will not have access to the identities or funds of traders.

The market is a project of a DARPA division called FutureMAP, or “Futures Markets Applied to Prediction”. FutureMAP is trying to develop programmes that would allow the Defence Department to use market forces to predict future events, according to its website.

“The rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise,” it said.

It said the markets must offer “compensation that is ethically and legally satisfactory to all sectors involved, while remaining attractive enough to ensure full and continuous participation of individual parties”.

Dorgan and Wyden released a letter to Poindexter calling for an immediate end to the programme.

They noted a May 20 report that cited the possibility of using market forces to predict whether terrorists would attack Israel with biological weapons.

“Surely such a threat should be met with intelligence gathering of the highest quality – not by putting the question to individuals betting on an internet website,” they said.