The inspired John De Palma writes to me:

With the TradeSports Saddam contracts, Justin Wolfers had it relatively easy in inferring the extent to which an anticipated war was built into financial market pricing. (Paper – PDF file).

A similar analysis for WWI: “(…) Ferguson is intrigued by the behavior of the financial markets on the eve of World War I because stock and bond prices at the time registered scant concern about the impending cataclysm. This contrasts with the conventional view among historians that the war was all but preordained because of a decade of escalating great-power rivalries that erupted into violence after the assassination of an Austrian archduke by a Serbian terrorist in June 1914… Ferguson was most surprised that the people who had more to lose from a war — bond investors — didn’t see it coming (…).”

When Nassim Taleb spoke in New York last week he mentioned how, according to the analysis by Ferguson, war bonds did not anticipate WWI. Consistently, Taleb wrote in his reaction to a New York Times review of “Black Swan”: “(…) I gave a cohort-style exhaustive account of the four highest impact events in the history of the last two thousand years–the two great wars, and the rise of Christianity and Islam –and showed that they were unexpected based on contemporaneous accounts. If, as Niall Ferguson showed, war bonds did not forecast the great war, it was a Black Swan (…).” PDF file

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