DARPA's PAM

While proofing some pages from the book The Wisdom of Crowds I came across the author's analysis of PAM, a program about which I'd kind of forgotten. So here's a fun flashback to 2003:

The Policy Analysis Market (PAM), also known as FutureMAP was a proposed futures exchange developed by the United States' Defense Advanced Research Projects Agency (DARPA) and based on an idea first proposed by Net Exchange[1], a San Diego research firm specializing in the development of online prediction markets.

PAM was to be a "a market in the future of the Middle East", and would have allowed trading of futures contracts based on possible political developments in several Middle Eastern countries. The theory behind such a market is that the monetary value of a futures contract on an event reflects the probability that that event will actually occur, since a market's actors rationally bid a contract either up or down based on reliable information. One of the models for PAM was a political futures market run by the University of Iowa, which has allegedly proven more accurate in predicting the outcomes of U.S. elections than either opinion polls or political pundits. PAM was also inspired by the work of George Mason University economist Robin Hanson.

At a July 28, 2003 press conference, Senators Byron L. Dorgan (D-ND) and Ron Wyden (D-OR) claimed that PAM would allow trading in such events as coups d'état, assassinations, and terrorist attacks, due to such events appearing on interface pictures on the project website. They denounced the idea, with Wyden stating, "The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque," while Dorgan called it "useless, offensive and unbelievably stupid". [2] Other critics offered similar outrage. Almost immediately afterwards (within less than a day) the Pentagon announced the cancellation of PAM, and by the end of the week John Poindexter, head of the DARPA unit responsible for developing it, had offered his resignation.

CNN reported the program would be relaunched by the private firm, Net Exchange, which helped create it, but that the newer version "will not include any securities based on forecasts of violent events such as assassinations or terror attacks". ^[1] On June 11, 2007, Popular Science launched a similar program, known as the Popsci Predictions Exchange.

There are now commercial policy analysis markets, such as InTrade, which offers futures on events such as the capture of Osama bin Laden, the U.S. Presidential Election, and the bombing of Iran.

The above from the Wikipedia entry. Well, the author, to my dismay, ended up defending PAM based on his correct but in this case misguided reasoning that a diverse predictions field would provide the best intelligence. . . . Misguided because the market predictions can easily become self-fulfilling when certain people's monies are on the table. . . . Which, I think, was probably the point to begin with.

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