The Policy Analysis Market project was badmouthed last week by Bruce Hansen of The Register, so I’m publishing here some excerpts of Robin Hanson’s verbatim.
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[...] It fell to me to explore possible application areas, and after looking into a half dozen possibilities, I recommended international military instability. This area met several criteria, including the key criteria of asking questions where better answers are worth a whole lot to the Department of Defense. [...]
[...] We planned to cover eight nations. For each nation in each quarter of a year, we planned to have traders predict its military activity, political instability, economic growth, US military activity, and US financial involvement. In addition traders would predict US GDP, world trade, US military casualties, and western terrorist casualties, and a few to-be-determined miscellaneous items. This would require a hundred or so base markets. Most important, we wanted to let our traders predict combinations of these, such has how moving US troops out of Saudi Arabia would effect political stability there, how that would effect stability in neighboring nations, and how all that might change oil prices. [...]
On May 20, 200, DARPA reported to congress on the IAO, and described FutureMAP in terms of predicting a bioweapons attack against Israel. In June 2003 we began to tell people about our webpage, and to give talks drum up interest. Charles Polk created the PAM website, wherein in the faint background sample screen, he included as colorful examples of miscellaneous items the assassination of Arafat, and a missile attack from North Korea. In the summer of 2003, the Senate but not the House had cancelled IAO funding, which included all FutureMAP funding, because of privacy concerns with another IAO project, “Total Information Awareness.” Due to this funding uncertainty, when the media storm hit our plans were to start on September 1 with one hundred testers to which we had each given $100. Registration to be one of those testers was to open August 1, with public trading to being January 1, 2004. The media storm hit on July 28, 2003, when two senators complained that we were planning to let people bet on terrorist attacks. The next morning the secretary of defense announced that FutureMAP was cancelled. In the intervening day, no one from Congress asked us if the accusations were correct, or if the more offending aspects could be cut from the project. DARPA said nothing. The next day, John Poindexter resigned, and two months later all IAO research was cancelled.
- Paper: Statistical analysis of the Press articles on PAM – PDF file – Download the paper and look whose name is on the frontpage. 
- Yahoo!’s research scientist David Pennock came up in the defense of PAM.
[...] I can understand the shock and outrage people felt when they first heard about PAM. Had I not known anything about the project, I likely would have reacted the same way. But knowing something of the other side, and seeing the incredible firestorm burn out of control so fast, with nearly all coverage and commentary coming in exceedingly one sided, was both frustrating and frightening to behold. It certainly makes me think twice about all those seemingly outrageous scandals I hear about that I otherwise know little about. It’s a shame that PAM — and all the research programs surrounding it, most having nothing to do with terrorism — were dismissed out of hand in a single day with little discussion and little investigation into their merits. The bottom line is that PAM, in some form, might have worked. [*] I certainly hope that other academic and commercial projects investigating the predictive power of markets will proceed.
[*] PAM was a great project, in my view. It gave us MSR, which is a great technology. However, Robin Hanson’s choice of the Mid-East as a target was too cocky. Few Americans have good inklings on this part of the world. Americans don’t get the Arabs and the Muslim religion.
