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[Maria Winslow <maria.winslow AT windows-linux.com>]

On Tuesday 29 July 2003 02:58 pm, BigLee Haslup wrote:
> Maria,
>
>    Welcome to Earth!!  What planet are you from?
>

I honestly don't know sometimes. It feels like Sliders around here :) I don't 
have details about their original plans for a market, but they said "futures 
market", so I will assume that's what they meant. Allow me to offer a 
definition, since one seems lacking.

In a futures market, one buys futures contracts. A futures contract is a 
legally binding agreement to buy (or sell) some commodity for a specific 
agreed upon price at a specific agreed upon time in the future. 

It's like the stock market, except for commodities. Commodities can be 
defined 
as stuff that is all the same (in the same quality grade), and therefore 
sells for the same price on the market no matter where it comes from.

Take coffee for example. We can watch the weather, political happenings, 
shifts in foreign government farm subsidies, etc, and make an intelligent 
guess as to what it will be worth in the future based on what it was worth in 
the past. We won't all be right, of course. Since it's a commodity, we know 
that coffee will have a common price on the world market on any given day 
with active trading, and the futures market will always be in the ballpark. 

The point of the futures market is threefold. 
1) Traders make money in futures by betting on whether the price will go up 
or 
down (buying and selling contracts). 
2) Price volatility is reduced as a consequence of wide trading.
3) Some of the risk of producing the commodity is distributed among all 
participants in the market, reducing volatility in production. (For example, 
the people who are "buying" soybeans don't actually have any - the contracts 
represent actual soybeans that farmers are producing, and so they have some 
assurance of what they will get at harvest.)

Now that we got that out of the way, on to the point...

>     Seriously, you seem to have been distracted by some sort of
> one-man-one-vote, democratic notion.  I would agree that there is nothing
> stupider than 10,000 randomly chosen people (unless it is 10,000
> self-selected "smart" people). 

I don't really know what ideological train you're on with the democracy 
remark. It has nothing to do with the issue. But my point was certainly not 
that 10,000 people were stupid. It is that 10,000 random Americans simply do 
not have enough information to predict future terrorist activities. Boy, was 
I surprised on 9/11! It also places an inherent contradiction into the 
picture. Suppose I believe that my neighbors are really a terrorist cell. Do 
I call the police and stop the whole thing now, or do I try to make back my 
pets.com money? Retire or sacrifice Southpoint Mall? If I'm wrong about the 
future price of coffee, I may lose money, but no one gets hurt. 

But every free market has some kind of predictive ability. My argument is 
that 
it wouldn't predict terrorist activity beyond the obvious (such as unguarded 
nuclear power plants). Once unleashed, it would likely find it's own 
"knowledge". Maybe that knowledge would just be a rehash of what was said 
last night on Fox news by the new market pundits. And those pundits would be 
ex-FBI/CIA/etc who quit their jobs for the better salaries in new market 
punditry. Which would presumably reduce the intelligence talent employed by 
the government, although it may just serve to outsource it.

> But that is not the point.  Participants in
> the system would be rated for past accuracy and the system would be able to
> sort out the 10 people with real information from the 9,990 imbeciles with
> nothing.  If someone who has been right ten times in a row says the Oscar
> Meyer Wiener Wagon is going to crash into the Capitol and explode, then the
> government should start building the giant, explosion-proof,
> helicopter-deployed bun.
>

Futures markets work because the partcipants have enough information to guess 
reasonably accurately the future values of commodities. Otherwise, it's just 
a wild ride until the bubbles burst. But at least there is always a price for 
a commodity. Terrorist attacks are relatively rare, and are not commoditized. 
So what, exactly, are we betting on, and how do we value it? It seems more 
like Lotto than a futures market. 

I understand the desire to broaden our knowledge base in an attempt to 
predict 
terrorist activity, and it is, in simple principle, an admirable one. But it 
doesn't seem to fit the model of a futures market well at all. My argument is 
not ideological, but that it just woudn't work. I am also a little worried 
that they can't figure out how to do the job themselves, and asking the 
public to help in this way does not bring me confidence. 

As for killing the project, I believe that must be the truth. Since the whole 
idea of the terrorist futures market requires more people than will fit into 
a bible study class at the Whitehouse, I think we would have to know about it 
if became anything more than a silly parlor game.

Maria

> BigLee
>
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-- 
Maria Winslow
maria.winslow AT windows-linux.com
919.968.7802

Open Source Migrations
www.windows-linux.com

Open Source Migrations conducts feasibility/ROI studies, performs open source 
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