Dave Tepper on the future's market for terrorism:
Okay, so maybe the phrase "futures market in terrorism" is poorly worded. But from the way these senators are caterwauling, you'd think no one ever made a bet on someone's life. Hillary Clinton called it a futures market in death. What the hell do you think life insurance is, you stupid nincompoop? Are we going to ban retirement annuities now, because the annuity seller is hoping for the buyer's early death? Wastrels. Asshats. Ugh!
The next drops of blood that a terrorist spills will partly be on their hands. I hope some private entrepreneur goes ahead and develops this market; if someone credibly thinks my flight home from Journalcon is going to be hijacked and is willing to bet money on that scenario, you can bet I'll want to know about that so I can make other plans.
Someone will develop this market, and it's going to be huge. As I have written elsewhere, we are all futurists now. We navigate what I call possibility space as a means of achieving certain specified outcomes and avoiding others. Outcomes that are nearer to us in this space have a higher probability; those that are further away have a lower probability. Two factors that are crucial to navigating possibility space are knowing what the probabilities are and developing the means to shift those probabilities in a favorable direction.
The bottom line is that we all want to avoid outcomes that involve suffering or death for oursleves, our families, and our friends. How this kind of information would be valued (that is to say, priced) is hard to say. But assuming that the cost of compiling this information is not prohibitively high, or that the act of sharing the information wouldn't change the probabilities so as to make it useless, the perceived value is sufficiently high to overcome any squeamishness that anyone might have about "betting on death."
UPDATE: Jeffrey Utech explains a the difference between life insurance and a future's market, making a pretty strong case that (where people's lives are concerned, anyway) a future's market seems to profit from the wrong outcome:
The futures market hopes for a person's early death. Life insurance hopes for a person's long, fruitful life.
The only way that the two are the same is that they're both betting on how long a person will live. The futures market is betting sooner rather than later, though, while life insurance is hoping it's later rather than sooner. But that's the only similarity, any other is, as they say, merely coincidental.
I guess I was thinking about something more along the lines of stock options, where you can set up either a put or a call and make money no matter which way the share price moves. The challenge here is to find a way for information on the probability of a terrorist attack to be profitable even if nobody dies. That's trickier than it sounds. It seems that you need for some attacks to occur and some people to be killed in order to estbalish the accuracy of the information.
I maintain that value of real data on the probability of a terrorist attack is unquestionable. But finding a way to create a market for that data may prove elusive.
MORE UPDATES: IntsaPundit has a good roundup on this issue. Also, check out the story in WiredNews:
[Supporters] of the project point out that gathering intelligence is often a messy business, with payoffs to unsavory characters and the elimination of potential adversaries. The futures market, ugly as it may sound, doesn't involve any of those moral compromises, said Robin Hanson, one of the earlier promoters of the concept of trading floors for ideas and a PAM project contributor. It's just a way of capturing people's collective wisdom.
"Among the many things we do for intelligence, this is one of the least reprehensible," Hanson said. "Paying people to tell us about bad things. That's intrinsic to the intelligence process."
And a trading floor could be more effective than paying off a snitch.
Indeed it could. If I were a predicting man, I might suggest that this idea isn't quite dead yet.
Posted by Phil at July 30, 2003 02:39 PM | TrackBack