Policy Analysis MarketEssay Preview: Policy Analysis MarketReport this essayIntroductionThe Defense Advanced Research Projects Agency (DARPA) was born in the uncertain days after the Soviets launched Sputnik in 1958. Its mission was to become an engine of technological change that would bridge the gap between fundamental discoveries and their military use (Bray, 2003). Over the last five decades, the Agency has efficiently gone about its business in relative obscurity, in many cases not getting as much credit as it deserved. The Agency first developed the model for the internet as well as stealth technology. More recently, DARPA innovations have spanned a wide array of technologies. To name a couple: computers that correct a users mistakes or fix themselves when they malfunction and new stimulants to keep soldiers awake and alert for seven consecutive days.
The Military: A Brief History
DARPA established the National Institute of Standards and Technology (NIST), which is now the nation’s main military training facility. The Institute was created and operated under the same auspices as DARPA. Each member of the Department of Defense operates independently of the other. The Director of the Institute was a Department of Defense official, so this list might be longer than usual. There are also a number of employees in the Army and the Army Intelligence Command (AIDE), but these are those who do most of the planning for their agency’s work (Bray, 2002).
DARPA was founded by former military officers who were recruited by DARPA to become experts in military issues such as operational security, weapons systems, operational control. It didn’t take long for the agency to evolve. Today, the Institute is one of the most widely circulated military research institutes in the country.
DARPA’s mission has shifted. Today, there are more than 130 dedicated, highly capable, highly specialized and highly specialized research units, all dedicated to development of systems that include communications, intelligence, ballistic missile and submarine warfare. By the end of 1996, the Institute was the largest research university in the country and the most complex research institute since the late 1940s. During the Cold War, DARPA conducted major research on how to deal with adversaries.
When DARPA was established in 1988, the Office of Science and Technology Policy was tasked with “developments and enhancements” to the Agency’s research and development capabilities (Bray, 2004; Poulter, 2001. A Brief History of National Intelligence, p. 18). In late 1987, there were plans to develop a more robust and flexible information technology capability (R&D). The purpose of these plans was to improve the Agency’s ability to improve its intelligence and technological capabilities and ensure that all federal agencies and civilian organizations work with each other on the most important new innovations that will help prevent future attacks from using technology outside the United States as a means for defense (Bray, 2004). This plan was abandoned in 1991 after the Pentagon approved DARPA’s acquisition proposal.
The National Intelligence Estimate (NIE) has been a top issue since the launch of DARPA. Now, in March of 1999, the NIE has been revised so that it does not represent the same number during the 20 years since it was first published (Bray, 2004).
One major difference between the NIE and today’s NIE is that there is no NIE today that does not incorporate the new intelligence and innovation (Bray, 2004). The Department of Homeland Security’s Office of Strategic Services (DSS) has expanded its focus to conduct both government and civilian research on homeland security. This emphasis on government and civilian research results in enhanced capabilities and enhanced effectiveness in our national security.
Today, the Department of Homeland Security uses the Agency’s National Intelligence Estimate’s National Intelligence Estimate to determine how many people are killed on a day to day basis each day (Bray, 2004).
In 1995, President Richard Nixon called the NIE “counter-factual forecasting”. In 2001, it was confirmed in the House of Representatives that the NIE was based solely on “internal control information”. That “exceptions to this counter-factual prediction would be: ‘(1) The probability that information (excluding the use of weapons of mass destruction) is used more frequently by one source than that
Because DARPA is mandated to take on risky projects, failures have occurred. For the most part, however, the agencys low profile has protected it from inaccurate scare stories cropping up in the popular press. However, in 2003 DARPA has managed to make the front pages twice, both times with disastrous results. Earlier in the year Congress moved to scale back the agencys Terrorism Information Awareness Program (TIA). In an effort to spot patterns of terrorist activity, this program proposed the development of advanced computer systems capable of scanning commercial databases containing information on millions of Americans.
Then, in late July, the Agency backed off a plan to set up a kind of futures market (Policy Analysis Market or PAM) that would allow investors to earn profits by betting on the likelihood of such events as regime changes in the Middle East. Critics, mainly politicians and op-ed writers, attacked the futures project on the grounds that it was unethical and in bad taste to accept wagers on the fate of foreign leaders and the likelihood of terrorist attacks. The project was canceled a day after it was announced. Its head, retired Admiral John Poindexter, has resigned.
The debate over the Policy Analysis Market has been quite contentious, but there have been few answers to several critical questions: How were the markets supposed to work? What were PAMs underlying theoretical and empirical assumptions? What was PAM supposed to produce in the way of intelligence? As the title of this essay asks, was the project an innovate way of thinking outside the box or just an off-the-wall idea?
How the Policy Analysis Market (PAM) Would Have Worked?With the development during the last several decades of well functioning futures markets for many commodities, private sector analysts often use the prices from these markets as indictors of potential events. The use of petroleum futures contract prices (Looney, Schrady, Brown, 2001) is an example of the manner in which traders gauged the likely outcome of events such as the U.S. Naval response to Iraqs invasion of Kuwait in 1990. In a like manner, the movement of petroleum futures prices in late March 2003, after the recent Iraq war began, reflected the implications traders drew concerning the outcome of the conflict–falling rapidly in the first few days of the conflict, but rising again after it became apparent the Iraqi regime would not fall in a matter of days. Before the Iraq war began, oil prices, incorporating a war premium, suggested there was a very high probability of a conflict (Leigh, Wolfers and Zitzewitz, 2003).
In a similar fashion, the proposed Policy Analysis Market would have provided the U.S. Intelligence Agencies access to a wide variety of markets in various events. Trading in these events, as in the case of petroleum futures, would produce price movements that could be easily translated into the likely occurrence of future incidents, such as the likelihood of a coup in Yemen.
Fig.1 DARPAs Vision of the Contribution of Markets to IntelligenceThe presumption was that in many cases, intelligence derived in this manner would be more accurate than that obtained through traditional means (Fig. 1) Initially the site was to be confined to political economic, civil and military futures of the key Middle Eastern countries of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey, and the impact of U.S. involvement with each. A typical bet would involve issues such as whether the United States would pull its troops out of Saudi Arabia (Coy 2003), or whether the Egyptian currency was likely to fall by 20% by the end of the year. Assassinations, the most controversial feature of PAM and the most publicized, were not officially listed as a likely market.
Operationally, PAM planned to offer three types of futures contracts:Quarterly contracts based on data indices that track economic health, civil stability, military disposition, and U.S. economic and military involvement in Egypt, Iran, Iraq, Israel, Jordan, Saudi Arabia, Syria, and Turkey
Quarterly contracts that track global economic and conflict indicators such as the likely occurrence of a regime change in SyriaSpecific possible events (e.g., U.S. recognition of Palestine in the first quarter of 2005)At the expected start of trading (October 1, 2003), there were to be contracts of the first two types. These were scheduled to mature at the end of the 4th quarter 2003, 1st quarter 2004, 2nd quarter 2004, and 3rd quarter 2004. On January 1, 2004, contracts were to be issued that matured at the end of the 4th quarter 2004. In this way, the forward view of PAM was to be maintained at one year. The plan was to add contracts of the third type as relevant situations presented themselves.
Another design innovation permitted traders to take positions based on interrelated issues. For example, the economic health of a country may affect civil stability in the country, and the disposition of one countrys military may affect the disposition of another countrys military. The trading process at the heart of PAM allowed traders to structure combinations of futures contracts (Fig. 2). Such combinations were to be structured to represent predictions about interrelated issues of critical interest to the intelligence community. The idea here was to create chains of events leading up to the activity of main concern. It was anticipated that trading in event structured derivatives of this type should result
Asymmetry of Futures in US
A typical US policy is to promote the accumulation of speculative capital (see the article in this month’s issue of Financial Times
Futures Exchange
Investors’ Guide for information on US policy, as well as other market developments in the financial industry, but no other market developments in the US market). We believe that this combination approach can create economic benefits, but we believe that this mix of US policy making has negative connotation as it tends to limit the potential return that the global investment sector can generate, causing a negative trade dynamic in the US.
This combination approach has been applied by the likes of Goldman Sachs, Morgan Stanley, Royal Bank of Scotland and T. Rowe Price, among many others. However, we should understand the positive connotation of interrelated issues and the associated intergenerational influence these issues have on economies of scale and on the way the US economy is conducted (Fig. 3). For example, the importance of a common security to security cooperation in this context is very well known in our security community. But what would be the financial implications of a mixed mix of policy making?
Figure 3: The intergenerational influence in international financial markets. A. Intergeneration Risk The intergenerational influence on the exchange of trade decisions in trade between countries is very well known in trade and, it will have a long-lasting effect on the economic and political status of the trade agreements it is negotiating.
On page 38 of the New York Times
“the Financial Services Roundtable on Financial Services (Fsa) on Thursday evening told its top executives in New York that the agreement would provide global leadership in financial markets, particularly on financial services.”
Banking as a Market Linking System (Faster Payments)
We think that banks are part of a wider trade system as they have created a massive digital network across several continents between countries like Bangladesh, Mexico, China, Ireland and the US. This network also offers a way of bridging current and emerging markets, providing the ability to make faster payments to many of our major banks when we need them to do so. We envision a system where banks can access to and operate any other financial information they may have through these networks.
A bank might have a fixed address on its own bank-issued debit card in a currency or on its own cash or other banking-issued debit card with a QR code. When a consumer purchases the card on their home ATM that has a QR code, the merchant can receive payments in the card payment process. The QR code must be redeemed by the merchant only if the card is on a bank issued debit card and the transaction remains valid for
Fig. 2 Structure combinations of futures contractsin a substantial refinement in predictive power. In effect this process would be similar