Policy Analysis Market

The Policy Analysis Market (PAM) was a planned online futures market in which traders would have bought and sold contracts on the economic, political and military outcomes of eight Middle Eastern states. It was built by Net Exchange with funding from the Defense Advanced Research Projects Agency (DARPA) within a research program that DARPA named Futures Markets Applied to Prediction (FutureMAP). Senators Ron Wyden and Byron Dorgan denounced it on July 28, 2003, and the Pentagon abandoned it on July 29, 2003.

Solicitation and Contractors, 2000 to 2002

Michael Foster, who ran the National Science Foundation's quantum computing research program, persuaded DARPA in 2000 to fund research on prediction markets from 2001. The first call for proposals went out in May 2001 under the name "Electronic Market-Based Decision Support," with proposals due in August; by December 2001 two firms had won Small Business Innovation Research grants: Neoteric Technologies, with Martek and professors at the University of Iowa, and Net Exchange, founded by the Caltech professor John Ledyard, with professors at George Mason University including Robin Hanson and David Porter, and later the Economist Intelligence Unit. Each was to receive 100,000 dollars for a six-month Phase I, after which one would receive 750,000 dollars for Phase II. More money became available, and in fall 2002 both firms were funded for Phase II and Net Exchange also won interim funding. Net Exchange's president, Charles Polk, named the project the Policy Analysis Market.¹

During 2002 John Poindexter became a DARPA executive, and, in Hanson's account, Foster's FutureMAP program was placed within Poindexter's organization, the Information Awareness Office. In December 2002 DARPA issued a call for proposals under the FutureMAP name, and in summer 2003 six teams (Penn State, Metron, ICT, George Mason, Sparta and BBN) were awarded 100,000 dollars each. Hanson wrote that Net Exchange had spent about two thirds of its Phase II money when the program was cancelled and that Foster had asked for, but not received, 8,000,000 dollars more over the following years.¹

DARPA's Report to Congress, May 20, 2003

DARPA's report to Congress on the Terrorism Information Awareness (TIA) program, dated May 20, 2003 and submitted under Public Law 108-7, lists FutureMAP among the "Advanced Collaborative and Decision Support Programs" of TIA, with Genoa II, Wargaming the Asymmetric Environment and Rapid Analytical Wargaming. It states that the program "provides DoD with market-based techniques for avoiding surprise and predicting future events," and that within TIA it "will answer predictive questions such as 'Will terrorists attack Israel with bioweapons in the next year?'" The technical approach is described as "a 'market' in two kinds of futures contracts: One pays $1 if an attack takes place; the other pays $1 if there is no attack."²

The report states that DARPA had supported two seedling efforts under the SBIR program: one defining and managing markets of 15 to 20 invited participants on questions about "specific kinds of failure within our national infrastructure," the other long-running markets based on data series from "independent news and intelligence sources," in which participants would trade "composite 'securities'" such as the probability that a decrease in a country's gross domestic product would coincide with an increase in civil unrest. Under transition and deployment, the report names the Center for Army Analysis and the Central Intelligence Agency as interested parties and states that FutureMAP predictive technology would be evaluated in TIA experiments at the Army's Intelligence and Security Command beginning in fiscal year 2005. The FY 2004 President's budget lines are 3,000 thousand dollars for FY 2004 and 5,000 thousand for FY 2005, with the program running from FY 2004 to FY 2008.²

The Market Design

Net Exchange planned to cover eight nations, with the Policy Analysis Market's contracts covering economic health, civil stability, military disposition and U.S. economic and military involvement in Egypt, Iran, Iraq, Israel, Jordan, Saudi Arabia, Syria and Turkey, plus "global economic and conflict indicators" and specific events such as U.S. recognition of a Palestinian state. Registration was to begin on Friday, August 1, 2003 and trading on October 1; the market would start with 1,000 traders and grow to at least 10,000 by January 1, 2004, and the website said government agencies would not be allowed to participate or have access to the identities or funds of traders.³ Hanson wrote that a combinatorial market maker required a subsidy and that, with 50,000 dollars budgeted for it, individual bets would be limited to a few tens of dollars, and that the plan was to open on September 1 to one hundred testers who each had been given 100 dollars.¹ Hanson told Nextgov that the website would not accept more than 100 dollars on any particular bet and gave as an example of a combinatorial question whether withdrawing U.S. troops from Saudi Arabia would raise or lower terrorist-caused deaths in the United States over the next year.⁴

A graphic on the market's website showed hypothetical contracts on the likelihood that Palestinian leader Yasser Arafat would be assassinated or that King Abdullah II of Jordan would be overthrown, and included a North Korean missile attack. The graphic was removed within hours of the senators' press conference.³ Hanson wrote that the website's builder, Polk, had included "as colorful examples of miscellaneous items the assassination of Arafat, and a missile attack from North Korea."¹

Denunciation and Cancellation, July 28 and 29, 2003

At a press conference on Monday, July 28, 2003, Wyden said: "The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque." Dorgan described the program as useless, offensive and "unbelievably stupid" and asked: "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?" Wyden said that the market was under the supervision of Poindexter, the head of the Terrorism Information Awareness program. DARPA's statement said the market was part of a research effort "to investigate the broadest possible set of new ways to prevent terrorist attacks" and that futures markets "have proven themselves to be good at predicting such things as elections results."³⁵

On Tuesday, July 29 Senate Democratic leader Tom Daschle said on the Senate floor that the program "could provide an incentive actually to commit acts of terrorism." Senator Hillary Clinton called it "a futures market in death." Senator Barbara Boxer said: "Because terrorists knowing they were planning an attack could have bet on the attack and collected a lot of money. It's a sick idea." Deputy Defense Secretary Paul Wolfowitz told the Senate Foreign Relations Committee that he had learned of the program in the newspaper and that "it is being terminated." Senator John Warner, chairman of the Armed Services Committee, said he had spoken to the head of DARPA, Anthony Tether, after consulting Senators Pat Roberts and Ted Stevens, and that the three agreed that the program "should be immediately disestablished"; he added that Poindexter and Tether had personally reviewed it.⁵⁶

Hanson wrote that the senators had "(falsely)" complained that the plan allowed betting on individual terrorist attacks, that nobody from Congress asked whether the accusations were correct or whether the more offensive aspects could be cut, and that DARPA said nothing in the intervening day. In the Nextgov interview Hanson said the program was killed because of "unfortunate examples used on the Web site," including the Arafat assassination, "which some senators spun to betting on terrorism."¹⁴

Poindexter and the Information Awareness Office

Nextgov reported that FutureMAP was approved by Poindexter as director of the Information Awareness Office, and that he was not leading the office when Hanson's team responded to the original solicitation; Hanson wrote that he had never met Poindexter.¹⁴ The Pentagon had planned to spend 8 million dollars on the market through 2005.⁴

Poindexter sent a five-page letter of resignation dated August 12, 2003 to Tether, to take effect August 29, saying that the political climate and ignorance about programs he strongly supported were the reasons.⁷ Hanson wrote that two months after Poindexter's departure all Information Awareness Office research was cancelled, and that in summer 2003 the Senate, but not the House, had already cancelled the office's funding because of privacy concerns over Total Information Awareness.¹ The joint explanatory statement of the conference report on the fiscal 2004 defense appropriations act, dated September 24, 2003, directed that the Information Awareness Office "be terminated immediately" and listed four research projects that could continue under DARPA: Bio-Event Advanced Leading Indicator Recognition Technology, Rapid Analytic Wargaming, Wargaming the Asymmetric Environment, and Automated Speech and Text Exploitation in Multiple Languages. FutureMAP is not among them.⁸

Robin Hanson and Polymarket

In early 2019 Shayne Coplan, later the founder of Polymarket, wrote to Hanson in what New York magazine described as "a verbose email with multiple block paragraphs" proclaiming that he wanted "to be the person to bring prediction markets to life." Hanson "brushed him off," the magazine wrote, because many companies had tried in the decades since he first wrote about prediction markets without achieving critical mass.⁹