July 31, 2003 | Philadelphia InquirerImagine you could make money if a suicide bomber struck in the Middle East. You could, if you bet someone that there would be an attack, and there was one. But would you do it? When the Pentagon disclosed Monday that it was setting up a futures-trading market for speculators to bet on the likelihood of terrorist acts, the outrage was so quick and intense that the plan was scuttled the next day. As planned, the terrorism futures scheme would have been used to predict -- and thwart -- acts of terrorism, the Pentagon said. With lives saved, questions of taste and morality would have melted away. Typical futures markets are used for speculating on future prices of commodities such as wheat and oil. Futures contracts are used to lock in a commodity's price months down the road. These enormous markets are a proven tool for revealing the consensus about where prices are headed. They work quite well. Futures have also been used to forecast outcomes in nonfinancial events. Since 1988, the UNIVERSITY OF IOWA has operated the Iowa Electronic Markets, in which traders buy and sell contracts forecasting results of presidential and other elections.
Contact: Forrest Nelson