Hill hits gambling program on terror

The latest brainchild of a contentious Pentagon program -- an online gambling parlor that allows anonymous investors to make money predicting assassinations and terrorist attacks -- is drawing fire from Capitol Hill.

The Terrorist Information Awareness office will open the waging scheme Friday and begin signing up 1,000 traders to deposit funds for transactions. In a report to Congress, TIA said the program will provide the Defense Department "with market-based techniques for avoiding surprise and predicting future events."

Online trading begins Oct. 1, and by Jan. 1, at least 10,000 traders will be able to participate in the Policy Analysis Market.

Investors who successfully predict, for example, a missile attack by North Korea, the assassination of Palestinian Authority chief Yasser Arafat or the overthrow of the king of Jordan would profit financially, said the Defense Advanced Research Projects Agency. The agency oversees the TIA program.

Critics on Capitol Hill sent a letter to TIA Director John Poindexter yesterday demanding that the trading scheme end immediately. They also are taking legislative action to kill funding for the entire TIA program.

"The federal government is encouraging people to bet on and make money from atrocities and terrorist attacks," said Sen. Ron Wyden, Oregon Democrat, during a press conference disclosing the program's activities.

Mr. Wyden called the terrorist market "grotesque" and "bizarre."

"Betting on terrorism is morally wrong," he said.

"It's a harebrained scheme," said Sen. Byron L. Dorgan, North Dakota Democrat. "I think this is an unbelievably stupid program that is so devoid of value. It is offensive to almost everyone."

A spokesman for DARPA issued a written statement that the agency has "undertaken this research as part of its effort to investigate the broadest possible set of new ways to prevent terrorist attacks and will continue to reevaluate the technical promise of the program before committing additional funds beyond Fiscal Year 2003."

The program will explore new ways "to help analysts predict and thereby prevent terrorist attacks through the use of future market mechanisms," the statement said.

"Research indicates that markets are extremely efficient, effective and timely aggregators of dispersed and even hidden information. Futures markets have proven themselves to be good at predicting such things as election results; they are often better than expert opinions," the statement said.

DARPA will not have access to investors' identities or their funds.

"We call on you to put an immediate end to a project being pursued by your office that would allow anyone -- even terrorists -- to profit by placing anonymous bets on future terrorist attacks," the senators said in the letter.

"We think that this wasteful and absurd use of taxpayer dollars should be stopped. We will also advocate against appropriating the $8 million that your office has requested for the Futures Markets Applied to Prediction (FutureMAP) program that expands this scheme to promote betting on terrorism," the letter said.

More than $800,000 has been spent to develop the market.

Failure to identify traders would "encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead U.S. intelligence authorities," the letter said.

Any winnings are expected to be paid from the pool of bets.

"FutureMAP's innovation is to use markets to replace today's approach of discussion and consensus among experts. The new approach is to set up, as it were, a 'market' in two kinds of future contracts: One pays $1 if an attack takes place; the other pays $1 if there is no attack," the report said.

"Market participants trade the issued contracts freely. Prices and spreads signal probabilities and confidence. Since the markets provide incentives for good judgment and self-selection, the market will effectively aggregate information among knowledgeable participants," the report said.

Mr. Wyden is the leading legislative critic of the TIA program and has succeeded in including language in the Senate Defense spending bill to zero out funding for the project. He and Mr. Dorgan said they hope their House colleagues will kill the program when the spending bill goes to conference.

Mr. Wyden said he has spoken to TIA officials about numerous concerns, including the program's plans to create a supercomputer data-mining base to track terrorists, but to no avail.

"I've told them they have to get out of never-never land. We believe they aren't getting the message, and we want to close this program," Mr. Wyden said.