DARPA's FutureMAP - trading in terrorism

Printable Version | [eMail this article!] |

Watching the news last night, I saw Ron Wyden (D-Oregon, Senator) on a 10 second soundbite lambasting a "terrorism lottery" being paid for with our tax dollars. The newscasters gave no explanation of what in the world he was talking about. I went to Wyden's site and found his comments Wyden, Dorgan Call For Immediate Halt to Tax-Funded "Terror Market" Scheme Defense Department program sells "futures" in possible terrorist attacks; offers profit potential to anonymous bidders if catastrophic events occur

Brief excerpt from Widen's site:

Washington, DC - U.S. Senators Ron Wyden (D-Ore.) and Byron Dorgan (D-N.D.) today called for the immediate end of a Defense Department project ostensibly designed to predict terrorist events through the online selling of "futures" in terrorist attacks. The Policy Analysis Market, the first phase of the program, has already gone online with funds from a Federal grant and is scheduled to begin a beta test on Friday, August 1. The Defense Department has also requested $8 million for its Futures Markets Applied to Prediction (FutureMAP) initiative, which would expand on the Policy Analysis Market?s terror-wagering scheme. In a letter to the Defense Advanced Research Projects Agency?s (DARPA?s) Dr. John Poindexter today, Dorgan and Wyden said they would advocate against any funding for such a program, and told Poindexter they want the Policy Analysis Market stopped now.

?The example that you provide in your report would let participants gamble on the question, "Will terrorists attack Israel with bioweapons in the next year?" 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," the Senators wrote to Poindexter. "Spending taxpayer dollars to create terrorism betting parlors is as wasteful as it is repugnant. The American people want the Federal government to use its resources enhancing our security, not gambling on it."

The Policy Analysis Market and the FutureMAP program would work much like other financial markets, with investors buying "futures" in events they think are likely to happen, and selling off futures as they believe events become less likely to happen. Some of the possibilities the Policy Analysis Market website offers for sale are the overthrow of the King of Jordan, the assassination of Yasser Arafat, and a missile attack by North Korea. Bidders would profit if the events for which they hold futures "including government coups, assassinations and missile attacks" occur.

The Policy Analysis Market program is scheduled to begin registration for potential investors this Friday, and its website offers examples of policy experts making trades in the system. However, the Policy Analysis Market website states an intention to eventually include thousands of traders who only have to pick a username and password to participate. Additionally, the Policy Analysis Market website assures potential investors that DARPA will not have access to their identities or funds. This promise creates the possibility that terrorists themselves could drive up the market for an event they are planning and profit from an attack, or even make false bets to mislead intelligence authorities.

So now the hunt was on. What in the world is FutureMAP. Not surprisingly, there is not a whole lot of information on a program scheduled to start 8/1/2003 (yeah, Friday). Well FutureMAP is a sub project of TIA (Terrorism Information Awareness which used to be called Total Information Awareness). Wikipedia describes it as

Futures Markets Applied to Prediction, or FutureMAP, intends to "concentrate on market-based techniques for avoiding surprise and predicting future events." It will analyze data from the world's economy in attempt to predict political instability, threats to national security, and in general every major event in the near future. The IAO's stated strategy for this division includes "the markets must also be sufficiently robust to withstand manipulation", possibly suggesting the intention of altering future events to further the goals of the United States. (TIA entry)

Apparently FutureMAP was born out of a program called the Neotek Markets Project (Also known as Neoteric Technologies, Inc.). "Neotek is a small business providing products and services for research, development, system integration, and support to DoD and related organizations. Formed in April, 1990 by a staff with over 25 years working together for a major aerospace firm providing similar products, emphasis is on life cycle system engineering and automation of logistics products. Technologies include: optics, Information Technology (IT), Decision Aids (DA), Artificial Intelligence (AI), and Man/Machine Interfaces (MMI)." It is in partnership with a company called Market Technology Systems, L.L.C. (MarTek). MarTek was founded by four professors from Tippie College of Business ( Joyce Berg, Forrest Nelson, George Neumann and Tom Rietz).

Neotek currently has two "demo" markets up and running -- the "Homeland Threat Level Market" and the "SARS 2004 Market." They also have a FutureMAP discussion board, but it hasn't gotten much "play."

Digging deeper on the NeoTek site, you can find the HOMELAND THREAT LEVEL MARKET Prospectus which states "On, Sunday, March 30, 2003, Neotek and MarTek will open trade in a series of contracts based on the fraction of days in the month under the various terrorist threat levels as announced by the Department of Homeland Security. This document specifies the contracts to be traded and the structure of the market in which they are traded." The market currency is in "Info$, the unit of exchange for this market. These Info$ are fictitious cash and have no cash value."

So that's the "demo" project, but what have we bought with our tax dollars? Policy Analysis Market. A A Market in the Future of the Middle East. While the NeoTek version used "Info", PAM will use real bucks. From the PAM Concept Overview:

The contracts traded on PAM will be based on objective data and observable events. These contracts will be valuable because traders who are registered with PAM will use their money to acquire contracts. A PAM trader who believes that the price of a specific futures contract under-predicts the future status of the issue on which it is based can attempt to profit from his belief by buying the contract. The converse holds for a trader who believes the price is an over-prediction ? she can be a seller of the contract. This price discovery process, with the prospect of profit and at pain of loss, is at the core of a market?s predictive power.

As DARPA notes "PAM will be active and accessible 24/7 and should prove as engaging as it is informative." (from PAM Concept) You betcha!

So who are the "Organizations behind PAM" as the PAM site states it? Well, we have NetExchange whose motto in "expanding the value of commerce;" the Economist Intelligence Unit - "business information arm of The Economist Group" (< a href="http://www.policyanalysismarket.org/pam_orgs.htm">http://www.policyanalysismarket.org/pam_orgs.htm)
which is a part of The Economist.. Last but not least, we have the big backer DARPA (The Defense Advanced Research Projects Agency). The DARPA note is "DARPA has funded the development and operations of PAM. U.S. government agencies will not be allowed to participate in PAM and DARPA will not have access to the identities or funds of PAM traders." (from PAM backers cite). [It would seem that a VERY important piece of information would be who the PAM traders were.]

So how does one Become a PAM Trader?

PAM is intended to have a globally distributed population of traders. Individuals interested in the Middle East and in the involvement of the United States with the countries of the Middle East are welcome to register as PAM traders. Individuals who are interested in the use of market processes to manage risk are also welcome to participate in PAM. Whatever a prospective trader's interest in PAM, involvement in this group prediction process should prove engaging and may prove profitable.

Trader registration will open on August 1, 2003 and will be accessed exclusively through this web site. There will be three steps to the trader registration process:

1. Acceptance of various terms governing access to and use of PAM, the principal of which is recognition that PAM is a prototype and that the registrant is agreeing to participate in the test of this prototype.

2. Selection of a username and password by the registrant.

3. Deposit of funds into the registrant's PAM trading account.

On-line training will begin for registered traders on September 1, 2003. Live trading will begin on October 1, 2003.

As a means of ensuring the smooth and efficient start of live operations, registration will be limited initially to 1,000 traders. As system operations are tuned to the trading load, this limit will be increased. By January 1, 2004, the limit will be raised to at least 10,000 traders.

During this first phase, we appreciate input from prospective PAM traders. These comments will assist in development of the interface as well as general information about PAM. More information and details will be added to the site in the next few weeks, however, we welcome hearing your thoughts and interest through the button below.

.

For some reason, funding for covert operations comes to mind. Assuming that folks will be playing with real money, and perhaps big money, there has to be a financial system behind this program. What happens to the money going into DARPA's PAM until someone cashes out? Who gets to "fiddle" with the value of "stocks?" Does the trading itself set the value? Can traders purchase insurance on their investments (I believe that is possible in futures trading, and is certainly an unanswered question from who profited from the 9/11/01 markets).

Wyden and Dorgan state their concerns as largely ethical. It isn't ethical to trade on terrorism. I agree with that, but there are other issues here besides ethics.

I am not even a novice when it comes to stocks and trading. I hope that someone with more expertise will follow up on this.

For a shorthand look at the TIA components see Tia and Her Twelve Sisters by Karen Kwiatkowski on LewRockwell.com.
Here's another one TOTAL INFORMATION AWARENESS (DARPA?S RESEARCH PROGRAM) by Information & Security, 2003 Vol 10:105-109.

Posted by rowan at July 29, 2003 06:11 AM | Printable Version | [eMail this article!] |