From the New York Times:

The Pentagon office that proposed spying electronically on Americans to monitor potential terrorists has quickly abandoned an idea in which anonymous speculators would have bet on forecasting terrorist attacks, assassinations and coups in an online futures market.

This may sound incredibly macabre, not to mention insensitive, but the thing is, there’s a non-terrible idea here. The Iowa Electronics Markets have been trading in futures of political events, with surprisingly good results. (Indeed, "The Pentagon, in initially defending the program, said such futures trading had proven effective in predicting other events like oil prices, elections and movie ticket sales.") Technology Review explains it in greater detail:

For years, mathematicians have known that large groups of individuals are fairly adept at presaging outcomes, from company performance in the stock market to sports betting pools. In 1988,  [U. of Iowa] Tippie [College of Business] researchers created the Iowa Electronic Markets (IEM), a system by which people could buy and sell shares in U.S. presidential candidates, producing a more precise result than any pre-election polling data, demonstrating that this method can likely be applied to a wide range of industries. Subsequently, the IEM has set up markets that have predicted box office revenues, the performance of high-tech stocks, and the Federal Reserve bank rateall with admirable accuracy.

Now this concept of trading on the future has made its way into the defense arena, catching the eye of the Defense Advanced Research Projects Agency…. The agency is interested in using information markets to predict whether defense contractors will deliver projects on budget and on time…. But DARPA aims to use information markets to do more than simply keep contractors in line. According to Michael Foster, program manager for DARPAs Information Awareness Office in Arlington, VA, the next step is to determine whether or not they can predict political unrest in different regions of the world.

Its quite likely there are people in parts of the world, like embassy employees, academics, etc., who have information about that region thats not held in any small group of security experts, says Foster, whose office recently sponsored a two-day workshop on using markets for decision support. We want to tap into those broader sources of knowledge.

Nonetheless, it sounds like the TIA’s proposed implementation was, shall we say, a little publicity challenged. It also reflects, I think, a hesitancy towards gambling, expressed in Paul Starr’s critique of the IEM.