DARPA MEETS NOSTRADAMUS….What’s the best way to predict the likelihood of a terrorist event? Amy Sullivan reports that the Pentagon thinks the market can tell us:

DARPA has launched a pilot program that creates a financial market based on various possible terrorist events — including the overthrow of the King of Jordan, the assassination of Yasser Arafat, a biological weapons disaster — in an attempt to predict their occurrence. The initial funding for financial Web site, which will begin accepting bidders on August 1, was a mere $750,000, but DoD is currently asking for an additional $8 million to expand the program.

Jeez, talk about faith in the power of the free market. In the same vein, maybe instead of employing civil engineers to design our bridges, we should just let the public pick a design via auction. That’s assuming, of course, that you don’t mind your bridges being suspended by an invisible hand.

As Amy points out, DARPA is famed for funding rather, um, experimental projects. But even so, aside from the fact that markets are generally thought to be best suited to allocating resources, not predicting the date of World War IV, surely they realize the diplomatic implications of this? “Wonder how the King of Jordan is going to feel when he finds out his American buddies are letting people buy shares in the possibility that he will be overthrown?” Amy asks.

Well, we could ask him. Then again, maybe we could just run a market to predict his answer.

Amy promises more on this later. I can’t wait.

UPDATE: Via email, Ogged of Unfogged points to this New Yorker article about “decision markets” that suggests the DARPA scheme isn’t that farfetched.

That’s true, and even though I already knew that I guess the chance to make fun of DARPA was too good to pass up. However, the article actually raises an interesting question: what if the DARPA plan works? What if it actually provides better predictions than expert analysis?

The New Yorker points to several markets that apparently do work better than the experts, but I note that in all these cases the experts continue to make their own predictions regardless. Why? Maybe the lesson of all this is that we need to have fewer experts….

UPDATE 2: More on this from AP.