ASHINGTON, July 28 — The Pentagon
office that proposed spying electronically on Americans to monitor
potential terrorists has a new experiment. It is an online futures
trading market, disclosed today by critics, in which anonymous
speculators would bet on forecasting terrorist attacks,
assassinations and coups.
Traders bullish on a biological attack on Israel or bearish on
the chances of a North Korean missile strike would have the
opportunity to bet on the likelihood of such events on a new
Internet site established by the Defense Advanced Research Projects
The Pentagon called its latest idea a new way of predicting
events and part of its search for the "broadest possible set of new
ways to prevent terrorist attacks." Two Democratic senators who
reported the plan called it morally repugnant and grotesque. The
senators said the program fell under the control of Adm. John M.
Poindexter, President Ronald Reagan's national security adviser.
One of the two senators, Byron L. Dorgan of North Dakota, said
the idea seemed so preposterous that he had trouble persuading
people it was not a hoax. "Can you imagine," Mr. Dorgan asked, "if
another country set up a betting parlor so that people could go in —
and is sponsored by the government itself — people could go in and
bet on the assassination of an American political figure?"
After Mr. Dorgan and his fellow critic, Ron Wyden of Oregon,
spoke out, the Pentagon sought to play down the importance of a
program for which the Bush administration has sought $8 million
through 2005. The White House also altered the Web site so that the
potential events to be considered by the market that were visible
earlier in the day at www.policyanalysismarket.org could no longer
But by that time, Republican officials in the Senate were
privately shaking their heads over the planned trading. One top aide
said he hoped that the Pentagon had a good explanation for it.
The Pentagon, in defending the program, said such futures trading
had proven effective in predicting other events like oil prices,
elections and movie ticket sales.
"Research indicates that markets are extremely efficient,
effective and timely aggregators of dispersed and even hidden
information," the Defense Department said in a statement. "Futures
markets have proven themselves to be good at predicting such things
as elections results; they are often better than expert
According to descriptions given to Congress, available at the Web
site and provided by the two senators, traders who register would
deposit money into an account similar to a stock account and win or
lose money based on predicting events.
"For instance," Mr. Wyden said, "you may think early on that
Prime Minister X is going to be assassinated. So you buy the futures
contracts for 5 cents each. As more people begin to think the
person's going to be assassinated, the cost of the contract could go
up, to 50 cents.
"The payoff if he's assassinated is $1 per future. So if it comes
to pass, and those who bought at 5 cents make 95 cents. Those who
bought at 50 cents make 50 cents."
The senators also suggested that terrorists could participate
because the traders' identities will be unknown.
"This appears to encourage terrorists to participate, either to
profit from their terrorist activities or to bet against them in
order to mislead U.S. intelligence authorities," they said in a
letter to Admiral Poindexter, the director of the Terrorism
Information Awareness Office, which the opponents said had developed
The initiative, called the Policy Analysis Market, is to begin
registering up to 1,000 traders on Friday. It is the latest problem
for the advanced projects agency, or Darpa, a Pentagon unit that has
run into controversy for the Terrorism Information Office. Admiral
Poindexter once described a sweeping electronic surveillance plan as
a way of forestalling terrorism by tapping into computer databases
to collect medical, travel, credit and financial records.
Worried about the reach of the program, Congress this year
prohibited what was called the Total Information Awareness program
from being used against Americans. Its name was changed to the
Terrorism Information Awareness program.
This month, the Senate agreed to block all spending on the
program. The House did not. Mr. Wyden said he hoped that the new
disclosure about the trading program would be the death blow for
Admiral Poindexter's plan.
The Pentagon did not provide details of the program like how much
money participants would have to deposit in accounts. Trading is to
begin on Oct. 1, with the number of participants initially limited
to 1,000 and possibly expanding to 10,000 by Jan. 1.
"Involvement in this group prediction process should prove
engaging and may prove profitable," the Web site said.
The overview of the plan said the market would focus on the
economic, civil and military futures of Egypt, Jordan, Iran, Iraq,
Israel, Saudi Arabia, Syria and Turkey and the consequences of
United States involvement with those nations. The creators of the
market envision other trappings of existing markets like
In a statement, Darpa said the trading idea was "currently a
small research program that faces a number of major technical
challenges and uncertainties."
"Chief among these," the agency said, "are: Can the market
survive and will people continue to participate when U.S.
authorities use it to prevent terrorist attacks? Can futures markets
be manipulated by adversaries?"
Mr. Dorgan and Mr. Wyden called for an immediate end to the
project and said they would use its existence to justify cutting off
financial support for the overall effort. In the letter to Admiral
Poindexter, they called the initiative a "wasteful and absurd" use
of tax dollars.
"The American people want the federal government to use its
resources enhancing our security, not gambling on it," the letter