Deinonychus antirrhopus

Better Late than Never: Terrorism Futures

By now many of you have problaby heard about the Futures Market for Terrorism, and how it has been killed. Frankly I think it is another example of the idiots winning another hand. The idea is that markets work well at ferreting out disperse information and aggregating it up into an index. Typically most of us call this index "a price". The idea behind the Terrorism Futures Market (TFM) was to let people bet on terrorist attacks and then use the resulting information (from the price, or odds) to get an idea of likely terrorist attacks/targets.

So contrary to the idiotic posturing by the Moron Storm, it was not simply about betting on terrorist attacks and making money off of death. It was about saving lives.

Was it a perfect idea? No. The idea rested on a theory called the Efficient Market Theory. This theory holds that whatever information some investor has in the mareket is avialable to everyone via the price. Thus, you can't "beat the market" by picking stocks. The problem is that this theory can't explain bubbles. So it has its problems.

So yes, this idea could be a failure. Or not. In any event we wont know now, and with the additional commentary by the Moron Storm it is unlikely that people will want to put forward other creative ideas for combating terrorism.

Frankly, this pisses me off. These idiots, Byron Dorgan, (pictured on right) and Ron Wyden (pictured on left), don't realize that killing this project comes with a potential cost. It is the same cost the F.D.A. imposes on society. Imagine you are dying from a disease. With certainty you know this disease will kill you. Now a new drug treatment comes along. The drug could cure you (or prolong your life) or it could kill you. The F.D.A., not knowing which will not let you take the drug. Basically, they have decided to let you die with certainty than to take a risk on living (longer).

And it isn't just these morons either. Senator Frist decided to get in on the action too. My guess is because it was politically expedient. Jump on the band wagon vs. being run over by it, and who gives a shit if there was any validy to the idea anyways.

Comments such as this from the Kansas City Star are amazingly idiotic:

Betting on potential acts of terrorism was a despicable idea that couldn't survive once the American public found out about it.

Insurance companies bet on such horrendous things. They bet on when disasters strike, how severe they will be, etc. Is this immoral? No, it is smart. Par for the course for journalists: too stupid to be sucking wind, IMO.

Update I: Kevin Drum thinks he's smart, but he's not.

The problem with Kevin's analysis is that the only way for terrorist to make money off this is to nickel and dime it, i.e., not bet big and not make big money. If the terrorists were planning on say killing Prime Minister X, and they bet big on it. Guess what happens, the odds on Prime Minister X change and it looks more likely. So now, those fighting terrorism are alerted to be extra careful and pay more attention to threats against Prime Minister X.

Remember, there are some things that are bad ideas even if it turns out that they work well for their ostensible purpose. It's the law of unintended consequences, something that Paul Wolfowitz apparently understands better than the blogosphere.

No. What Wolfowitz understands is that politically this is now a dead duck and there is nothing to be gained from trying to save it.

Kevin does point to Brad DeLong who has done some research on efficiency and markets. That at least is worht a read.

Kevin should take a note from Prof. DeLong. DeLong is not poo-pooing this idea outright (at least not in that post). Maybe, possible because Brad DeLong knows that sometimes markets gets the job done really, really well.