December 3, 2003

LOST OPPORTUNITY:

You Can Bet on Idea Markets: Forget the brouhaha over the Pentagon's futures market on terrorism. By gathering collective wisdom, idea markets can improve your forecasting, knowledge management, and decision making. (Ajit Kambil, December 1, 2003, Harvard Business School Weekly)

In July 2003, idea markets made an unexpected appearance in the headlines as the Pentagon was taken to task for its plan to use one to help pinpoint potential terrorism targets. The market would have allowed participants to trade opinions on where terrorists were most likely to strike in much the same way as one trades securities or commodities in other markets. Officials believed they could learn something worthwhile from the relative value that traders placed on different targets.

Unfortunately, these plans did not sit well with many lawmakers, who saw a market built around terrorist strikes as highly unseemly and a means to provide ideas to terrorists. And so the project was scrapped. Nevertheless, the Pentagon's plans show just how prominent idea markets are becoming in real-world applications. [...]

Idea markets have been used effectively outside the corporate world for more than fifteen years. Since 1988, the Iowa Electronic Markets have predicted presidential election outcomes more accurately than traditional polls 75 percent of the time. Similarly, the Hollywood Stock Exchange has forecast Oscar winners more effectively than even the most seasoned media critics seven years running.

Today, more and more companies are taking note of these results. [...]

Here are three steps that managers need to take to put an idea market into organizational practice:

Step 1: Tap into strategically important but difficult-to-measure customer behaviors [...]

Step 2: Unlock knowledge to tackle organization-wide challenges [...]

Step 3: Exploit markets to gain buy-in from customers and managers


Admiral Poindexter was right about the Contras too.

Posted by Orrin Judd at December 3, 2003 8:09 PM
Comments

But he didn't know beans about Iranians, did he?

I am not expert on idea markets, but some of my friends are. I listened in while they discussed Poindexter's idea, and they were unanimous in saying it was bogus.

Posted by: Harry Eagar at December 3, 2003 10:26 PM

We got the living hostages back.

Posted by: oj at December 3, 2003 11:04 PM

Yeah, swapped 'em for a cake.

Posted by: Harry Eagar at December 4, 2003 12:30 AM

But the idea was bogus? Getting American hostages for a cake seems pretty smart to me. Even without funding the Contra victory in Nicaragua.

Posted by: oj at December 4, 2003 8:26 AM

Bogus or not, if the idea had been implemented during the past administration we wouldn't have heard a peep from the press.

Posted by: genecis at December 4, 2003 10:11 AM

There were many in the blogosphere who thought this was a good idea (Reynolds, etc.). It seemed to me that all it really involved was thinking like the terrorists think - sort of plotting ahead of them, as it were. And what is wrong with that?

It may have seemed ghoulish to the left, but they don't care about terrorism and won't distinguish innocence from evil. Howard Dean's recent comments on bin Laden and Bush's "foreknowledge" of 9/11 speak volumes. Is Dean going to make anyone safer from anything? No.

One suspects that the 'terror' market would place quite a low value on about 75% of what passes for conventional wisdom on the subject; and people aren't going to like their nonsensical positions being exposed to the harsh light of the commodity pit.

Posted by: jim hamlen at December 4, 2003 11:06 AM

I'm not well enough informed about the market aspects of this, but the goal is nothing more arcane than what military officers are expected to do in assessing an enemy.

The rule there is, you don't prepare your defenses (or offenses, either) based on what you expect your opponent to do, but upon what he is capable of doing.

With armies, capabilities are limited by logistics etc. Terrorism is way less limited in that respect, and betting you know (or can guess) what is coming next flies in the face of everything we know about strategy.

Posted by: Harry Eagar at December 4, 2003 2:44 PM

That is exactly why this is outside the stratgic box. It is not like planning for war against Spain or Japan or Indonesia; it is more like preparing qualitative actuarial tables or medical diagnoses/prognoses.

Tom Clancy wrote about a 747 flying into the Capitol years before 9/11. While it is impossible to "blame" anyone for the events on that day, a market pool approach would have at least identified this method as getting quite a bit of bang for the buck.

One thing I expected to see right after 9/11, but have not, is a panel discussion on some talking head show about other methods (or strike points) of terrorism against us here at home. Maybe the FBI would get nervous if too many specifics were brought up, but that is the whole point of the idea. Sift through the chaff and find the stress points and then steps can be taken (quietly) to relieve them.

It doesn't cost much to ask: "what if?" And it doesn't cost much to figure out what the bad guys want to do - kill, kill, and kill again. I don't even think fear matters anymore, just death.


Posted by: jim hamlen at December 4, 2003 3:52 PM

That sounds like a plea for better war gaming. Not a bad idea, but not new, either.

Practically every startling event in recent history (sneak attack on Pearl Harbor, sinking of liner Titanic etc.) can be found to have been presaged in fiction somewhere or other. But by several orders of magnitude, things can be found in fiction that presaged nothing.

I cannot remember who did it, but about 35 years ago, an English professor read through about 400 futuristic books written between about 1600 and 1950. He found exactly one (written by a Polish banker about what turned out to be World War I) that was really close to what happened.

Posted by: Harry Eagar at December 4, 2003 4:24 PM

Harry:

What about Jules Verne?

Posted by: jim hamlen at December 4, 2003 10:04 PM

Or Clarke. It's easy to imagine a wonderful machine, or a new political system.

Even beginning to sketch out how to do it is the hard part. Verne didn't do that, and, though I am not a Clarke reader, I don't believe he did either.

Posted by: Harry Eagar at December 5, 2003 4:58 PM
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