Forsythe Explains Markets

The plan by retired Rear Adm. John Poindexter to fight terrorism by using a futures market to predict Mideast developments was universally panned. In fact, the initiative cost Poindexter his job. A columnist writes that Poindexter may have been on to something, and the media did us all a disservice by so easily dismissing him. His aim was to establish a web-based futures trading market where experts could bet on the prospects of a terror attack. It may sound crazy, but markets are great predictors of world events. The point here was that the collective consciousness of experts could be an effective intelligence-gathering technique. A similar model at the University of Iowa has achieved great success in handicapping political contests. "What it appears he was trying to do was expand his base of advisers," explained ROBERT FORSYTHE of the Iowa Electronic Markets, which does a better job prognosticating elections than any poll. "People who come to participate in a market like this have some information about outcomes and trade on that information. What we have discovered in certain situations is that these types of futures markets do incredibly well in collecting bits of information disseminated by thousands of people." Unfortunately, while it's difficult to explain this complex idea in 20-second sound bites, it was easy to inaccurately torpedo it in a few sentences.