A Market for Terrorism? Per discussion in class, The Wired News reported the idea for the terrorism futures market that made headlines last summer. It makes implicit references to the Efficiency principle and even mentions the Iowa Futures Market. Joyce Berg, a University of Iowa professor who helped organize the political trading floors, says that exchanges "tend to predict events really well when no one person knows the answer -- when information is distributed among many people with different knowledge bases.... Markets have been shown to be really good at aggregating that information."

See also, this article from Reason magazine which argues that these markets would have provided useful information

To illustrate how PAM might work, Senator Wyden offered a scenario in which a bidder thinks early on that Prime Minister X is going to be assassinated. So she buys the futures contracts for 5 cents each. As more people begin to think the person's going to be assassinated, the cost of the contract could go up, to 50 cents.

"The payoff if he's assassinated is $1 per future," noted Wyden. "So if it comes to pass, those who bought at 5 cents make 95 cents. Those who bought at 50 cents make 50 cents." Of course, those who bet the other way, lose their money. What Wyden is ignoring is that while market participants are making and losing money, it's possible that our intelligence agencies have gained some valuable information to help our leaders formulate appropriate policies such as what to do if Prime Minister X is assassinated.