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On Idea Futures - Making Politicians Put Their Money Where Their Mouth…
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On Idea Futures
- Making Politicians Put Their Money Where Their Mouth Is
Eudoxa Policy Study #2
Eudoxa Policy Study #2: On Idea Futures
#2:
-Making Politicians Put Their Money Where Their Mouth Is
Politicians Mouth
Written by Anders Sandberg.
Translation by Lene Johansen.
This series of policy studies are published by The Eudoxa Think Tank. They address issues that are
current or will be in the near future. Eudoxa Studies are in depth studies on how emerging
technologies impact our culture and our society.
.
Eudoxa AB
Sveavägen 133
113 46 Stockholm
Sweden
+46 (8) 338-168
www.eudoxa.se
Copyright © 2003 by the Eudoxa Think Tank AB
ISSN 1652-0726
Nothing written here is to be construed as necessarily reflecting the views of the Eudoxa Think Tank
or as an attempt to aid or hinder the passage of any legislation.
Table of Contents
EUDOXA POLICY STUDIES
About Eudoxa.........................................................................................................................2
Executive Summary ...............................................................................................................2
On Idea Futures .....................................................................................................................3
Conclusion..............................................................................................................................6
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About Eudoxa
EUDOXA POLICY STUDIES
The Eudoxa Think Tank is a think tank based in Stockholm, Sweden. The main
focus of the group is explaining the cultural impact of emerging technologies
integrating the analysis with classical free-market ideas and dynamist thoughts of
experimentation, innovation and decentralization.
We work for a diverse society based on a strong moral foundation of individual
rights, where individuals have the right to utilize modern technology and medicine
according to their own moral judgement. We belive this foundation promotes
tolerance and acceptance that will tie our society together, not break it apart. The
inspirations behind our vision are a firm belief in individual libety, free enterprise, a
limited government and that ideas have impact on our society.
Eudoxa currently has staff working out of Stockholm, Sweden and Kansas City,
Missouri, giving them the advantage of being able to approach both the European
and American market with a comprehensive perspective drawn from experiences
from both contintents.
Executive Summary
The study explores the ideas behind DARPA's controversial Policy Analysis Market
research project by comparing it to more traditional futures markets. An idea
futures market is supposed to provide policy makers with more robust and complex
information based on individual knowledge, represented by the individual
investments. But PAM fell prey to the problem it was thought to cure; misinformed
politicians chose to shut down a project that was portrayed as "gambling on
terrorism".
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On Idea Futures
- Making Politicians Put Their Money Where Their M outh Is
EUDOXA POLICY STUDIES
Pentagon is probably the last organization you expected to start internet gambling.
The news about the opening of DARPA's internet based futures market for the
Middle East created a massive reaction. Democratic senators claimed that
"speculating on terrorism is morally wrong" and that the plan was a sick game.
Deputy Secretary of Defense, Tom Wolfowitz described the project as too
imaginative, and the head of the project, Dr. John Poindexter was forced to resign
by the howling media storm. The project was shut down before it had even started.
But what was this all about? Another bizarre project by the military industrial
complex to line their pockets further? An example on how media determines
important policy decisions? This affair is an ironic illustration of the dilemma that
today's decision makers and scientists have ended up in.
The idea behind the project was suggested by the economist Robert Hanson of
George Mason University more than 10 years ago. He had observed how the trade
with futures works for commodities like farming products. The prices set suggested
future availability and demand without relying on any central planning. Orange
Juice futures in Florida predict the weather with amazing accuracy. His though was
to create a futures market for ideas. In a market like this you would be able to buy
and sell futures for future events like "solar cells will supply 13% of the energy
consumption in year 2010" or "a computer will beat the world champion of chess
before 2020". The price will become a gauge on what futures that the participants
believe likely to happen. The futures that the market has confidence in will demand
a higher price, and since they have invested money in the future, they will also be
likely to invest more money based on this information.
The project has been subject for academic discussion during the 90ties, but the only
tests have been simulations with Monopoly money or closed groups. In this setting
the market has functioned well, University of Iowa's market has consistently been
more successful than the polls in predicting the outcome of the presidential
elections. A real market will demand real money and will be subject to American
gambling legislation. Economists have been arguing on how stable these markets
will be against speculation, and if they could be used to finance research.
The prospect of getting access to a wide range of information on the volatile Middle
East was tempting to DARPA, and they set about building a real policy market. The
goal was never to predict individual terrorist attacks, but rather public geopolitical
trends in the area like "Will the chances for disruption in Saudi Arabia increase or
decrease if USA moves their troops out?" or "How will the price of oil be influenced
by a Palestinian state?" Participants could buy and sell futures for future
happenings and specialists from the Economist would determine weather or not
they had hit. Advanced programming for economical calculation and web trades
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was put into an open website. Many of those that had learned about the project
where looking forward to the September 1st opening of the market and the ability to
test the theory. The money was never DARPA's motivation, the project would
EUDOXA POLICY STUDIES
provide useful knowledge no matter if the market worked or not.
Then the media spin hit. The democratic senators Byron L Dorgan and Ron Wyden
"exposed" the project and described it as bookmaking on terrorism. Osama bin
Laden would log on, predict attacks and then make money on counter bets when he
went through with the attacks. The journalists and other interested parties logged
on to the market site that got overloaded with traffic and went offline. No
explanations and no disclaimer could be issued through that channel. A rapid
growing media image was comprised by familiar images as overly generous
government spending, faulty moral assessment and outrageous projects. Through
this conventional recipe the story gained momentum without really paying
attention to the facts. Abroad the image got the added power of American
imperialism and the cynical market. Wolfowitz made the choice of shutting down a
small project he had little knowledge about before he got the straight story from his
subordinates at the Department of Defense.
Would this project have been useful? Even if no useful information on the Middle
East would have been acquired, we would still have gotten useful information on
idea futures markets. Was this dangerous? A terrorist would at the best make a few
hundred dollars, at the price of revealing his plans (and his account number). It
would not be presumptuous to assume it would be safer and more profitable for the
terrorists to take their money to the stock market.
Was the project ethical? Compared to commodity futures trading there is no
difference. The world price on wheat is a strong indicator of the amount of hunger,
and wheat futures could just as well be called hunger futures. Most all trade has
human implications, and even if we like to say that human lives are priceless we
still get life insurance. But these logical arguments will be defeated by the moral
outrage. The core in the attack was the presumed immorality of trading with risks.
The term "fighting terrorism" has become so charged that it has become what
Psychology Professor Phillip E. Tetlock at Ohio State call a sacred value. This is
something beyond the secular values, and even if the severity will vary, there is
always a taboo against weighting a sacred value against a secular value. Just as we
abhor those who put a price on a human life, an American politician can not allow
himself to treat terrorism as if it was a regular political issue. To cut a long story
short, the project hit an exposed nerve in the American society. The administration
had no other choice if they wanted to save their face.
The affair also shows how months of research and development can be undone by a
quick and panicky decision. This trend has become more common these days by the
increase of politics on the academic world, and the increase of the speed that
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decisions can be made by. Even private research has become vulnerable to the
Board of Director's concern over a bad public image.
EUDOXA POLICY STUDIES
In the eyes of the scientist, this is a threat. If he runs a project that can be
misinterpreted by the media, this being stem cells, a new medication or research on
the climate; he runs the risk of being "exposed", having to run the steeplechase of
the fourth power and then see his work being shut down by frightful and
misinformed politicians. The most obvious solution is to evade media attention.
There are few gains for a scientist in seeking media attention in the first place; in
fact your peers might even see it as a weakness and the risks is noticeable. It has
become common for projects to hide behind long and obscure names, avoiding
sending press releases and becoming hard to reach. DARPA's Policy Analysis
Market could easily have made it without opening up to the public. The use of
Monopoly money could even have been enough to save it although it would still be
open to criticism of being a sick strategy game. The only complete protection is
obscurity.
On the other hand, the public has a right to know what their tax money are being
spent on, and media has a real task in exposing dangerous or morally questionable
projects. But if everybody is hiding in the brushes; how will you know which is
which? The irony of the faith of the Policy Analysis Market illustrates exactly what
it was thought to solve.
The weakness of a centralized decision structure is that it can make wrong decisions
if the information it gets fed are wrong. Traditionally our politicians relied on
experts to provide accurate knowledge on the issues at hand, but today the media
has an increasing importance in this role. On top of this the increased speed of
information through the media leads to increased demands on the speed of
decisions made by the politicians. The lack of information or an unintentional bias
can lead to a wrong decision, which is implemented immediately. Not to say that
the expert governance of the past was perfect, it led to elitism and lack of
transparency. The hard thing is to find a balance between right knowledge and
public input in the decision making.
Hanson's thought was that a system with many information sources, each and
every one with local and unique knowledge would gather information in a broader
and more robust way. It is not only a question of what the majority thinks, but a
nuanced collage where many groups can speak their mind through influencing the
market. This would give the policy makers better information and prevent one bias
to dominate their information. Many decisions could be left to the market directly
instead of being top down.
This might also contain the answer on how research can be done both with
academic freedom, public transparency and government oversight. Many projects
are worth completing, even if they can be perceived as silly (like studies on efficient
toilet cleaning) or highly controversial (like stem cells) while others can be
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eliminated without further ado. This demands a compromise between scientific use,
ethics, economy and political goals and can only be achieved by a complex decision
process. If the decisions are spread out on more parties, you slow down the
EUDOXA POLICY STUDIES
reactions and fortify against the impact of media spin, this will give room for more
diverse input and more information gathering before a decision is made.
Conclusion
The idea futures market as a support for decision making has not been disqualified
by the Policy Analysis Market affair. The interest for this idea has rather been
strengthened, but it is likely that the tests will take the slow road and use Monopoly
money and closed projects. This kind of markets will most likely be looked upon as
the common way of doing policy analysis and making decisions upon one day, just
as the once controversial life insurance has become common today.
I am willing to put money on it.
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