FutureMap

Program Objective:

The DARPA FutureMAP (Futures Markets Applied to Prediction) program is a follow-up to a current DARPA SBIR, Electronic Market-Based Decision Support (SB012-012). FutureMAP will concentrate on market-based techniques for avoiding surprise and predicting future events. Strategic decisions depend upon the accurate assessment of the likelihood of future events. This analysis often requires independent contributions by experts in a wide variety of fields, with the resulting difficulty of combining the various opinions into one assessment. Market-based techniques provide a tool for producing these assessments.

There is potential for application of market-based methods to analyses of interest to the DoD. These may include analysis of political stability in regions of the world, prediction of the timing and impact on national security of emerging technologies, analysis of the outcomes of advanced technology programs, or other future events of interest to the DoD. In addition, the rapid reaction of markets to knowledge held by only a few participants may provide an early warning system to avoid surprise.

Program Strategy:

The DARPA FutureMAP program will identify the types of market-based mechanisms that are most suitable to aggregate information in the defense context, will develop information systems to manage the markets, and will measure the effectiveness of markets for several tasks. Open issues that will drive the types of market include information security and participant incentives. A market that addresses defense-related events may potentially aggregate information from both classified and unclassified sources. This poses the problem of extracting useful data from markets without compromising national security. Markets must also offer compensation that is ethically and legally satisfactory to all sectors involved, while remaining attractive enough to ensure full and continuous participation of individual parties. The markets must also be sufficiently robust to withstand manipulation. FutureMAP will bring together commercial, academic, and government performers to meet these challenges

FutureMAP == PAM (mirror)

>>1007332

addtnl…

Analysts often use prices from various markets as indicators of potential events. The use of petroleum futures contract prices by analysts of the Middle East is a classic example. The Policy Analysis Market (PAM) refines this approach by trading futures contracts that deal with underlying fundamentals of relevance to the Middle East. Initially, PAM will focus on the economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of U.S. involvement with each.

[Click here for a summary of PAM futures contracts]

The contracts traded on PAM will be based on objective data and observable events. These contracts will be valuable because traders who are registered with PAM will use their money to acquire contracts. A PAM trader who believes that the price of a specific futures contract under-predicts the future status of the issue on which it is based can attempt to profit from his belief by buying the contract. The converse holds for a trader who believes the price is an over-prediction – she can be a seller of the contract. This price discovery process, with the prospect of profit and at pain of loss, is at the core of a market’s predictive power.

The issues represented by PAM contracts may be interrelated; for example, the economic health of a country may affect civil stability in the country and the disposition of one country’s military may affect the disposition of another country’s military. The trading process at the heart of PAM allows traders to structure combinations of futures contracts. Such combinations represent predictions about interrelated issues that the trader has knowledge of and thus may be able to make money on through PAM. Trading these trader-structured derivatives results in a substantial refinement in predictive power.

[Click here for an example of PAM futures and derivatives contracts]

The PAM trading interface presents A Market in the Future of the Middle East. Trading on PAM is placed in the context of the region using a trading language designed for the fields of policy, security, and risk analysis. PAM will be active and accessible 24/7 and should prove as engaging as it is informative.

Copyright © 2003 Net Exchange. All rights reserved.

An Example PAM Futures and Derivatives Contracts

To illustrate the sort of contracts tradable on PAM, consider two issues tied to the now-historic case of pending hostilities between the United States and Iraq: (a) whether or not the Jordanian monarchy would be overthrown during hostilities between the United States and Iraq and (b) the ability of the Iraqi regime to persist for more than one month of hostilities. Each of these issues has two states; they occur or do not occur. A pair of futures contracts can therefore be defined for each issue and only one of each pair can end up as true:

Assigning the shorthand A to the Jordanian issue, A means overthrow occurs and ~A means overthrow does not occur.

Assigning the shorthand B to the Iraqi issue, B means the regime persists after one month of hostilities and ~B means that it does not persist.

To illustrate why such futures contracts would be traded, consider two PAM traders: a specialist in Jordanian domestic affairs and a specialist in U.S. military planning and operational capabilities – the first would feel comfortable trading in A and ~A while the second would feel comfortable trading in B and ~B. But what about the potential for interaction between these issues and how can these two specialists comfortably express their views on interactions that only partially involve their expert knowledge? This is a job for PAM derivatives.

The cells that form the outside of the table below illustrate the four futures contracts that span the two issues. The PAM trading system makes sure that the prices for the futures contracts that span an issue add up to $1.00; thus, a price is also a prediction; e.g., $0.35 = 35% prediction of A. The inner four cells of the table represent the joint outcomes for these two issues – the PAM trading system prices these so that they are equivalent to predictions as well.

A PAM trader who feels comfortable with both issues may choose to trade a contract in a joint outcome, a type of derivative. However, neither of the two PAM traders described above would be comfortable trading a joint derivative contract, which does not mean that such a trader has no information about joint outcomes.

The specialist in Jordanian domestic affairs may have a strong opinion that should the Iraqi regime persist beyond one month, the Jordanian monarchy will most likely fall. However, this PAM trader has no special knowledge of how U.S. military capabilities compare to Iraqi capabilities or of how the U.S. military intends to utilize its capabilities. For this trader, the conditional derivative, or hedge, is quite powerful. The conditional derivative allows the Jordanian domestic affairs specialist to leverage her knowledge of an effect (A) by hedging against her relative ignorance of a cause (B) – if the cause does not occur, then she does not lose any money, but if the cause does occur and the effect as well, then she can make a handsome profit.

Copyright © 2003 Net Exchange. All rights reserved.

>>1007367

last part of the old site includes this mail

—

DARPA markets on MidEast

From: Robin Hanson

Subject: DARPA markets on MidEast

Date: Sat, 31 May 2003 07:27:22 -0700

I've been involved for several years in helping DARPA to create some markets to help aggregate info on political, military, and economic changes in the Middle East, and the effect of US policy on such changes. For those interested, we are finally going public with some info on these markets: www.PolicyAnalysisMarket.org

Robin Hanson [EMAIL PROTECTED] http:// hanson.gmu.edu

Assistant Professor of Economics, George Mason University

MSN 1D3, Carow Hall, Fairfax VA 22030-4444

703-993-2326 FAX: 703-993-2323

DARPA markets on MidEast, Robin Hanson

>>1007352

>>1007332

>>1007367

>>1007400

These were taken from the defunct PAM website zip file from the The Policy Analysis Market (and FutureMAP) Archive

mason.gmu.edu/~rhanson/policyanalysismarket.html

FutureMAP == PAM is good stuff

dpennock.com/pam.html

The Good Side of the 'Terror Futures' Idea (Yes, There is One)

artificialmarkets.com/

>>1007783

double tucker is a worthwhile reason to KEEP DIGGING! carry on.. I'm hot on this FutureMAP == PAM trail, I don't quite know why, but its intersting