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The proposed Policy Market Analysis (PAM) project might be useful if it sparks interest in market limitations. The stock market may have quickly determined who was to blame for the Challenger disaster, but it didn’t predict the disaster. An unexamined problem with the PAM plan is the presence of a superpower that can game the system. Example: Will the Egyptian government be taken over by fundamentalists? If the market says yes, the United States may send troops. Traders know this, so predicted probability decreases, U.S. decision makers relax, resulting in a fundamentalist takeover. The market can make an effective prediction only if the superpower doesn’t act on the information.

Lyle Lofgren
Minneapolis, Minn.