Thoughts on the Theory and Practice of Speculative Markets qua Event Predictors

This paper analyzes the proposed use of combinatorial derivatives markets for event prediction, especially for catastrophic events such as terrorism, war, or political assasination. Following a presentation of the philosophical principles underlying these politico-economic tools, I examine case studies (U.S. DoD proposals) that evaluate their advantages and disadvantages in terms of both efficacy and moral considerations. I conclude that these markets are both fatally flawed due to internal conceptual contradictions and morally problematic.