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Buzz & Banter

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Kevin brings up a fascinating experiment by the Pentagon. Actually, this type of organized betting has been going on for some time in Las Vegas, and more recently on some sports-betting web sites. For example, though I do not participate in the betting, I often visit Tradesports.com. At this site, you can see real-time markets in everything from whether the Dow will close up by more than 100 points today, to who will win the World Series, to how long it takes before weapons of mass destruction are found in Iraq. Right now, the "ask" price is 24 for WMD being found before September 31st, which roughly equates to traders believing that there is a 24% chance of it occurring.

I have monitored this site to try to determine the exact same thing the Pentagon is - whether futures markets can predict future outcomes, or if they are simply a reflection of current popular belief. From my experiences watching sports-betting sites, these types of futures markets are more a reflection of popular opinion than they are a prediction machine. Ruben Studdard was the favorite to win American Idol on Tradesports, but I think that was due more to the fact that he was the judge's favorite than it was due to these traders having some type of inside knowledge as to how many people were going to phone in their votes.

I think the Pentagon is wasting more money for a useless (and pretty twisted, if you think about it) experiment that will lead them down many false paths should they pursue it. The only "redeeming" value it could have is if they use the market to investigate the winners. You can't tell me they wouldn't be interested in knowing WHO predicted a terrorist incident, regardless of the privacy policy they put forward.
No positions in stocks mentioned.

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