A US Government-Run Internet Betting Exchange?

29 July 2003

One day after the publicizing of plans for a U.S. government-bankrolled online betting exchange, members of Congress convinced the Pentagon to pull the plug on the scheme.

The plan, devised by the Defense Department's Advanced Research Projects Agency (DARPA), entailed the launching of a Web site offering a forum for buying and selling future options of terrorists events. The market was a project of a DARPA division called FutureMAP, or Futures Markets Applied to Prediction.

The program remained off the radar screen, until Monday, when the Pentagon sent a report on the project to Congress. It was met with immediate opposition.

The service was meant to enable the Pentagon to forecast (and ultimately circumvent) terrorist activity based on betting activity in the exchange. The site, www.policyanalysismarket.org, was scheduled to start taking registrations for traders on Aug. 1, but officials with DARPA acquiesced and halted the plan after hearing from Senate leaders.

Sen. John Warner, R-Va., chairman of the Senate Armed Services Committee, told the Associated Press that a call he had with DARPA's head, Tony Tether, resulted in Tether agreeing to kill the project.

DARPA, said Warner, "didn't think through the full ramifications of the program."

Warner made the announcement in the Senate right after Democratic leader Thomas Daschle made comments in the Senate chamber criticizing the idea as "an incentive actually to commit acts of terrorism."

"This is just wrong," Daschle said.

Warner and Daschle weren't the only Senate leaders to express outrage over the planned site. Warner said he spoke with Senate Intelligence Committee Chairman Pat Roberts, R-Kansas, and Appropriations Committee Chairman Ted Stevens, R-Alaska, about the project and that both agreed the project should be ended.

Bryon Dorgan, D-N.D., said the idea was ludicrous and paramount to the U.S. government "effectively operating an Internet casino."

Warner said the group of senators would recommend that no more funds be allocated to the Pentagon for the project, although $750,000 was spent in starting the project, according to Tuesday's Wall Street Journal.

The paper reported that Pentagon officials wanted to secure $8 million to expand the project over the next two years.

Warner said he would lobby his House colleagues to take similar action to cut off all funding for the project. The plug could be pulled during House-Senate budget conference committee negotiations later this year, he said.

Net Exchange, formed through a consortium of 10 faculty members from the California Institute of Technology, designed the Middle East exchange and agreed with the Pentagon to operate the site.

Through the exchange, users would wager on the likelihood of a future terrorist attack or assassination attempt on a particular leader.

Traders would have bought and sold futures contracts just like energy traders do now in betting on the future price of oil. But the contracts in this case would have been based on what might happen in the Middle East in terms of economics, civil and military affairs or specific events.

If an event was to happen by a predetermined time, holders of that future contract would have collected the proceeds from traders who put money on the losing end of the proposition.

While the site was designed to be a Middle East market, on Monday it contained a graphic on the hypothetical contract of a possible North Korean missile attack. The graphic was removed on the site after the press conference.

Other future options included the likelihood of Palestinian leader Yasser Arafat being assassinated and how long it would take before Jordanian King Adbullah II was overthrown.

Although the Web site described the Policy Analysis Market as a Middle East market, the graphic also included the possibility of a North Korea missile attack.

In its report, the Pentagon said the Policy Analysis Market would be used "to investigate the broadest possible set of new ways to prevent terrorist attacks."

During a press briefing on Monday, Warner said that his staff would look into the program and would report its findings today. Sen. Hillary Rodham Clinton, D-N.Y., said she was appalled to hear of plans to set up "a futures market in death."

Sen. Ron Wyden, D-Ore., one of two lawmakers who disclosed the plan Monday, said the plan was wrong on many different levels.

"The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque," he said. "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?"

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."

Last year Australian scholar Justin Wolfers, a faculty member of Stanford Graduate School of business, suggests that observing bookmakers' odds on an upcoming election may be the best way to accurately predetermine the outcome.

Wolfers and Andrew Leigh of the John F. Kennedy School of Government at Harvard co-authored a study examining the effectiveness of three tools for forecasting the outcome of Australia's 2001 federal elections: economic modeling, opinion polling and betting odds. The outcome of their research revealed that, "particularly in marginal seats, the press may have better served its readers by reporting betting odds than by conducting polls."

The study focused on Northern Territory-based bookmaker Centrebet's handicapping of the reelection of Prime Minister John Howard.

Phone calls from IGN to DARPA and Net Exchange were not immediately returned.

Nobody knows where Kevin Smith came from. He simply showed up one day and started writing articles for IGN. We liked him, so we decided to keep him. We think you'll like him too. Kevin can be reached at kevin@igamingnews.com.