Okay define irrational.

That is the problem economics has struggled with for a long time. It is a mistake, I think to think that because another person does not share your goals or even your views that they are “irrational”. Further, even if the suicide bomber is himself irrational, are those who “control” and direct the suicide bomber irrational?

By contrast, while Federal Reserve Chairman Alan Greenspan may be inscrutable, and many executives engage in short-term behavior that causes long-term damage, almost all market movers?chief executives like Warren Buffett and Michael Dell, mutual fund managers?collectively exhibit a far higher level of rationality than, say, Mullah Omar.

Again, your are using your own definition of rationality. And it begs the question again of what is irrationality?

Acting randomly? Acting in a self-destructive manner? Was Mullah Omar or Saddam self-destructive? Is it irrational to take big risks? What if you like taking big risks?

Here is one to consider: Are drug addicts irrational or have their objectives been changed by their drug abuse? If they are irrational then you cannot predict their behavior. However, I think we can predict their behavior: they will get high and in such pursuit will forgo other consumption (i.e., food, housing, etc.).

Another potential problem was that the market might defeat itself. The Pentagon wanted to create the PAM in order to gather information it could use to stop terrorism and reduce instability. If it saw, say, that people were betting heavily on the assassination of Iraq’s interim president, the Defense Department would start searching for some assassination plot in the hopes of rooting it out. But preventing the assassination would cause all the people who bet on it to lose their money. Insofar as the market helped the United States stabilize the region and prevent terror, investors would suffer. The more it succeeded on policy, the more it would fail as a market, and the sooner it would collapse.

Maybe, but there are also those who bet that the assassination wont happen or will be foiled. The more people bet on something happeneing the higher the payoff will have to be that it wont happen to get people to bet with you.

For example: I suck at basketball…I mean I really, really suck. Now, suppose I was to play one-on-one with Micheal Jordan.

Who would guess would win?

Now would you be willing to bet $10 for a $20 payoff that I’d win? No? How shocking.

How about $1 for a $10,000 payoff? Oh, you might be willing to “waste a buck…maybe Steve’ll get lucky or Micheal Jordan’s legs will fall off.”

Even in their support of this idea, Wired magazine had to admit that predictive markets aren’t perfect

Whoever said this would be perfect or even work. My understanding it was to be an experiment.

Setting up intelligence analysis as a game will only result in people making predictions based on spotting trends, when they should only be making predictions based on intelligence.

I hate to break it to you, but one of the key tools in intelligence is Game Theory which assumes that the actors are hyper-rational. Also, spotting a trend should be part of intelligence work, and knowing that trends can change should be as well.

Basically the logic here also argues we shouldn’t be wasting hundreds of millions of dollars on drug research. Most research programs will yeild little or nothing. Think of the good we could do with that money if spent elsewhere! Of course, we’ll have no more new drugs…and as a result people will die…but at least we’ll be using the money well. Or not.