Learning from Terrorism Markets By Adam Meirowitz and Joshua A. Tucker O n July 28, 2003, Senators Ron Wyden (D-Ore.) and Byron L. Dorgan (D-N.D.) held a press conference to call attention to a DARPA (Defense Advanced Research Projects Agency) project that would allow investors to bet on future political events in the Middle East—including ter- rorist attacks—through a commodity-market style trading sys- tem. On July 29, newspapers responded by denouncing this “unbelievably stupid” and “grotesque” market. Later that day, the program was officially cancelled. What can policy-makers and scholars learn from the fury generated by these events? Despite a blizzard of attention, the quality of political debate over the market was poor. Politicians rushed to deliver grandiose statements condemning it, many of which found their way into equally incensed newspaper articles. Little of what appeared in print, however, contained developed arguments about how traders would behave in the market and whether it would actually serve as a useful tool for the intelligence community. In this essay we make the following contributions. First, we highlight the shortcomings of the journalistic policy discourse through a simple survey of print media that appeared in the weeks following disclosure of DARPA’s plans. Second, we dem- onstrate how a methodology that has become standard in some quarters of academic political science could have improved the policy debate. Comparative analysis of political institutions is an approach that scholars use to understand how the structure of political institutions shapes the behavior of agents and even- tual policy decisions. While few published accounts developed cogent explanations for how the terrorist futures market would function, even fewer attempted to base these claims on exist- ing academic research. We fill this gap in the discourse by highlighting relevant lessons from experimental and empirical studies of similar markets and then tracing out how various components of a futures market design would affect its ability to function as a useful tool for aggregating information. In doing so, we highlight an example where political science research could have lead to a better policy debate and possibly a better policy outcome. Finally, we make explicit comparisons between a market based approach to aggregating intelligence information and the standard existing hierarchical structures. Media and Political Treatment of the Market Perhaps the defining characteristic of the proposed market saga was the lack of any high-level political debate. Practically every politician that weighed in on the matter opposed it. Wyden referred to the project as “make-believe markets trading in possibilities that turn the stomach,” 1 while Dorgan labeled it “unbelievably stupid.” 2 Senator Hillary Clinton (D-N.Y.) was widely quoted as calling the program “a futures market in death.” 3 Unlike other debates, the criticism did not stop at party lines. Senator John Warner (R-Va.) called the program “a rather egregious error of judgment,” and Senator Pat Roberts (R-Kan.) said that it “defies common sense. It’s absurd.” 4 Even Deputy Defense Secretary Paul Wolfowitz joined in the criticism, claim- ing that he had only learned about the plan himself by reading the newspaper and stating that “I share your shock at this kind of program. We’ll find out about it, but it is being terminated.” 5 The response by the press was similarly unbalanced, although not quite to the extent of the response by politicians. A search of Lexus-Nexus from the end of July until late August turned up 115 pieces on the policy analysis market (hereafter PAM). 6 Using a very blunt coding scheme, we broke down articles into three categories: “opposed,” “neutral,” and “in favor.”We cast our “in favor” net as wide as possible, including any pieces that had something positive to say about the proposed market. We also broke down articles into news or opinion pieces, with the latter comprising editorials, op-eds, letters to the editor, and columns. News articles were assigned to the “opposed” or “in favor” category only if they had a strong tone. As Table 1 demonstrates, only 16 articles were in favor of PAM. This stands in marked contrast to the 56 pieces that opposed the project. While there were 43 articles in the “neu- tral” category, the vast majority of these were news articles. Of the 67 opinion pieces, 49 were opposed to PAM, with only 14 presenting arguments in favor. This pattern was even more pronounced across the 25 edi- torials, with titles such as “The Pentagon’s SickTake on Risk Adam Meirowitz is an Assistant Professor of Politics at Prince- ton University. Joshua A. Tucker is an Assistant Professor of Pol- itics and International Affairs at Princeton University. The authors thank Ellie Powell andTatyana Karaman for their excellent research assistance, and Gary Bass, Tom Romer, the editor of Per- spectives on Politics, and two anonymous reviewers for their helpful comments and suggestions. Perspectives | Learning from Terrorism Markets June 2004 | Vol. 2/No. 2 331