Financial Engineering News on DARPA’s futures market

Nice analysis of DARPA’s geopolitical futures markets (discussed in previous posts here and here) in the Financial Engineering News. From the conclusion:

“Even if there were not any moral issues surrounding them, these futures are not a very smart thing to do. That is simply because there is a lot more information out there about what is going on geopolitical and terrorist-wise than what would ever come about from a market,” comments Gordon Woo, a risk modeler at RMS. Indeed, one betting shop manager in the U.S. already admitted that success in his business depends on knowing when a new book or report on terrorism or foreign affairs is coming out so he can close his book beforehand. The head of quantitative research at one large investment bank put it more bluntly: “I think the fact that officials in Washington considered this in the first place makes the U.S. government look totally bereft of common sense when it comes to the threat of terrorism.” He adds: “The point is that the market would allow any terrorist group to simply plan an attack and then have someone [or more] place a bet on it and make a pot of money. This is logical, but also immoral.”