IEM Noted In Policy Market Story

Facing a hailstorm of criticism from Democrats and Republicans, the Bush administration abruptly pulled the plug Tuesday on a proposed Pentagon research project to allow investors to make bets on the probabilities of terrorist attacks, assassinations and coups in the Middle East. The program -- called the Policy Analysis Market -- was the brainchild of the Pentagon's Defense Advanced Research Projects Agency, or DARPA. Supporters of the proposal, including a number of prominent economists, argue that "decision markets" such as the one proposed by the Pentagon can be very useful in using the collective knowledge of investors -- as expressed in their betting on prices -- to predict outcomes. For example, the Iowa Electronic Markets, run by the business school at the UNIVERSITY OF IOWA, allows investors to buy and sell "shares" in candidates and has been shown in some studies to be better than pollsters at predicting election results.

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