Friend and economist Kyle Hampton explains why the now-scrapped terrorism futures market would've worked.
Update: Megan McArdle raises an interesting point that a monetary investment in a predicted terrorist outcome might discourage bettors from providing high-quality tips to law enforcement agencies. The idea is that tipping off the feds could cause the tipper to lose money in the futures market if the authorities effectively prevent the attack. Hmmm.
This describes why I think the idea wouldn't have worked. Or more specifically, why I don't think a functional "terrorism market" would look anything like a real market.
Posted by: Tim on July 31, 2003 10:33 PMOops, the URL I was trying to post is:
http://binarybits.livejournal.com/67977.html
Posted by: on August 1, 2003 12:14 AMSome good points, Tim.
I have a vague conceptual issue with the idea of creating a market for some purpose other than making money. Although some investors in this market would make money, the people running it would have an entirely different motive. That, plus the usual distortions of political control, would seem likely to result in a terrorism futures market that wasn't structured or managed efficiently.
Posted by: Marie on August 1, 2003 9:52 AMThere is an existing terrorism futures market in America. Every property or liability insurance policyholder currently either must accept or reject a terrorism rider on his/her policy for a percentage of additional premium. This isn't betting in the speculative sense because the policyholders all have more to lose than their premium dollars, but taken in the aggregate (perhaps by zip code or type of business) it may offer some good predictive value.
Posted by: John on August 2, 2003 10:23 PM