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Markets to Keep the Peace

Join Robin Hanson from George Mason University in exploring DARPA's initiative to fund high-risk, high-return technologies through electronic market-based decision support. Learn about the challenges and potential of predicting global events through market mechanisms.

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Markets to Keep the Peace

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  1. Markets to Keep the Peace Robin Hanson George Mason University with Net Exchange, for DARPA

  2. DARPA said “Jump” • DARPA funds research on high risk, high return techs ripe for focused effort • Electronic Market-Based Decision Support ‘01 SBIR • Phase I: “design one or more markets to predict events in a limited domain of interest to the DoD, ” select domain, identify participants, their incentives • Phase II: “Evaluate the accuracy of market predictions against predictions of the same events by other institutions … develop more general techniques … prepare to establish markets in broader contexts”

  3. We Wondered “How High?” • Should we ask small or big questions? • Small questions • Usually first try new things on small scale • Avoid threaten status quo, org/legal rules • But thin markets can fail, hedging markets start big • Risk fixed costs more than added info value • Big questions • Existing intelligence techniques fail most here? • Prediction analysis get harder, but info markets easier

  4. $1 if A p(A) $1 $1 if A&B p(A|B) $1 if B Shooting Very High • What do we most want to know? “Would moving U.S. troops out of Saudi Arabia raise or lower the chance of a revolution there, or of terrorist deaths in the U.S.?” • Estimate outcomes given policy

  5. Imagine ... • Markets on ~10 vars per nation per quarter • Outcome: regime type, conflict level, deaths • US action: peacekeeping, show force, aid, … • Intermediate: GDP, corruption, missile tech • 2-4 assets/var, ~20 nations near Mideast • Always estimate any var given any other • Participate: DoD, academia, media, public?

  6. Challenges • Laws, Org rules • DoD cover, backing • Overcome participation inertia • Compare to existing institutions • Software, user interface • Combo markets can be thin • combo bids, market makers

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