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Senators: Pentagon Plan Would Allow Betting on Terrorism

The Pentagon (search) views it as a potentially innovative way to get clues about terrorists' plans: a public, stock market-style exchange where traders can profit by correctly predicting terror attacks or assassinations in the Middle East.

Two Democratic senators say the program is useless, offensive and immoral. They are demanding that the program be stopped before investors start signing up Friday.

"The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque," Sen. Ron Wyden (search), D-Ore., said Monday.

The program is called the Policy Analysis Market (search). The Pentagon office overseeing it, the Defense Advanced Research Projects Agency, or DARPA, said it was part of a research effort "to investigate the broadest possible set of new ways to prevent terrorist attacks."

Traders would buy and sell futures contracts -- just like energy traders do now in betting on the future price of oil. But the contracts in this case would be based on what might happen in the Middle East in terms of economics, civil and military affairs or specific events, such as terrorist attacks.

Holders of a futures contract that came true would collect the proceeds of traders who put money into the market but predicted wrong.

A graphic on the market's Web page Monday showed hypothetical futures contracts in which investors could trade on the likelihood that Palestinian leader Yasser Arafat would be assassinated or Jordanian King Abdullah II would be overthrown. Although the Web site described the Policy Analysis Market as Middle East market, the graphic also included the possibility of a North Korea missile attack.

That graphic apparently was removed from the Web site hours after the news conference in which Wyden and fellow Democratic Sen. Byron Dorgan of North Dakota criticized the market.

Dorgan described the market as "unbelievably stupid."

"Can you imagine if another country set up a betting parlor so that people could go in ... and bet on the assassination of an American political figure or the overthrow of this institution or that institution?" he said.

But in its statement Monday, DARPA said markets could reveal "dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions."

According to its Web site, the Policy Analysis Market would be a joint program of DARPA and two private companies, Net Exchange, a market technologies company, and the Economist Intelligence Unit, the business information arm of the publisher of The Economist magazine.

DARPA has been criticized by Congress for its Terrorism Information Awareness program, a computerized surveillance program that has raised privacy concerns. Wyden said the Policy Analysis Market is under the supervision of retired Adm. John Poindexter, the head of the Terrorism Information Awareness program and, in the 1980s, national security adviser to President Reagan.

The Web site does not address how much money investors would be likely to put into the market but says analysts would be motivated by the "prospect of profit and at pain of loss" to make accurate predictions.

Trading is to begin Oct. 1. The market would initially be limited to 1,000 traders, increasing to at least 10,000 by Jan. 1.

The Web site says government agencies will not be allowed to participate and will not have access to the identities or funds of traders.

The market is a project of a DARPA division called FutureMAP, or "Futures Markets Applied to Prediction."

"The rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise," the FutureMap Web site said.

Dorgan and Wyden released a letter to Poindexter calling for an end to the program. They noted a May 20 report to lawmakers that cited the possibility of using market forces to predict whether Israel will be attacked with biological weapons.

"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 Web site," they said.

Wyden said $600,000 has been spent on the program so far and the Pentagon plans to spend an additional $149,000 this year. The Pentagon has requested $3 million for the program for next year and $5 million for the following year.

Wyden said the Senate version of next year's defense spending bill would cut off money for the program, but the House version would fund it. The two versions will have to be reconciled.