Rietz: IEM May Succeed Because of Impartiality

Could an online terror-futures market predict where Al Qaeda will strike next? Early last week the Defense Advanced Research Projects Agency at the Pentagon was moving forward with trials of an Internet exchange for futures contracts on economic, civil and military events in eight Middle Eastern countries. The plug was pulled on the project. But academic studies show that orange-juice futures are often a more accurate indicator of weather than meteorologists. Since 1988, the Iowa Election Markets (IEM), conducted by the University of Iowa, has consistently bested pollsters when it comes to predicting presidential-election results. Its record piqued Pentagon interest and was one inspiration for studying terror futures. Why do markets work as crystal balls? It's not entirely clear, but part of the reason may be their impartiality. They tend to allow the best information to rise to the top and to override the bully factor, which is huge in the intelligence community. In any sector some voices will be forceful, others intimidated, "and all of that will influence the opinions that are shared," says Professor THOMAS RIETZ, one of the directors of the IEM. "It's a leap from elections to geopolitical risk, but you could see why someone would make that leap."

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