30 July 2003

The web site for Policy Analysis Market was withdrawn on July 29, 2003. See Department of Defense and DARPA comments:


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[Concept Overview]













Analysts often use prices from various markets as indicators of potential events. The use of petroleum futures contract prices by analysts of the Middle East is a classic example. The Policy Analysis Market (PAM) refines this approach by trading futures contracts that deal with underlying fundamentals of relevance to the Middle East. Initially, PAM will focus on the economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of U.S. involvement with each.

Summary of PAM Futures Contracts

Three types of futures contracts will be offered on PAM:

  • Quarterly contracts based on data indices that track economic health, civil stability, military disposition, and U.S. economic & military involvement in Egypt, Iran, Iraq, Israel, Jordan, Saudi Arabia, Syria, and Turkey
  • Quarterly contracts that track global economic and conflict indicators
  • Specific possible events (e.g., U.S. recognition of Palestine in the first quarter of 2005)

When trading starts on October 1, 2003, there will be contracts of the first two types that mature at the end of the 4th quarter 2003, 1st 2004, 2nd 2004, and 3rd 2004. On January 1, 2004, contracts that mature at the end of the 4th quarter 2004 will be issued. In this way, the forward view of PAM will be maintained at one year.

Contracts of the third type will be issued into PAM as specific potential events of interest are identified.

Copyright © 2003 Net Exchange. All rights reserved.

The contracts traded on PAM will be based on objective data and observable events. These contracts will be valuable because traders who are registered with PAM will use their money to acquire contracts. A PAM trader who believes that the price of a specific futures contract under-predicts the future status of the issue on which it is based can attempt to profit from his belief by buying the contract. The converse holds for a trader who believes the price is an over-prediction – she can be a seller of the contract. This price discovery process, with the prospect of profit and at pain of loss, is at the core of a market’s predictive power.

The issues represented by PAM contracts may be interrelated; for example, the economic health of a country may affect civil stability in the country and the disposition of one country’s military may affect the disposition of another country’s military. The trading process at the heart of PAM allows traders to structure combinations of futures contracts. Such combinations represent predictions about interrelated issues that the trader has knowledge of and thus may be able to make money on through PAM. Trading these trader-structured derivatives results in a substantial refinement in predictive power.

Example of PAM futures and derivatives contracts

The PAM trading interface presents A Market in the Future of the Middle East. Trading on PAM is placed in the context of the region using a trading language designed for the fields of policy, security, and risk analysis. PAM will be active and accessible 24/7 and should prove as engaging as it is informative.

[The Organizations behind PAM]













Net Exchange has a ten-year history of applying innovative market technologies to processes not traditionally handled with markets – PAM is the latest chapter in this history. Net Exchange is responsible for design, development, and operation of the PAM trading system.


The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through a global network of over 500 analysts, it continuously assesses and forecasts political, economic and business conditions in 195 countries. As the world's leading provider of country intelligence, the Economist Intelligence Unit helps executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies. The Economist Intelligence Unit is working with Net Exchange to collect and process the data on which the securities in PAM are based, and then to assess the value of the securities when they mature.


The Defense Advanced Research Projects Agency (DARPA) is interested in improving on existing techniques for predicting future events and for assessing the issues that underlie and influence what might happen. DARPA has funded the development and operations of PAM. U.S. government agencies will not be allowed to participate in PAM and DARPA will not have access to the identities or funds of PAM traders.


[Becoming a PAM Trader]













PAM is intended to have a globally distributed population of traders. Individuals interested in the Middle East and in the involvement of the United States with the countries of the Middle East are welcome to register as PAM traders. Individuals who are interested in the use of market processes to manage risk are also welcome to participate in PAM. Whatever a prospective trader’s interest in PAM, involvement in this group prediction process should prove engaging and may prove profitable.

Trader registration will open on August 1, 2003 and will be accessed exclusively through this web site. There will be three steps to the trader registration process:

  1. Acceptance of various terms governing access to and use of PAM, the principal of which is recognition that PAM is a prototype and that the registrant is agreeing to participate in the test of this prototype.

  2. Selection of a username and password by the registrant.

  3. Deposit of funds into the registrant’s PAM trading account.

On-line training will begin for registered traders on September 1, 2003. Live trading will begin on October 1, 2003.

As a means of ensuring the smooth and efficient start of live operations, registration will be limited initially to 1,000 traders. As system operations are tuned to the trading load, this limit will be increased. By January 1, 2004, the limit will be raised to at least 10,000 traders.

During this first phase, we appreciate input from prospective PAM traders. These comments will assist in development of the interface as well as general information about PAM. More information and details will be added to the site in the next few weeks, however, we welcome hearing your thoughts and interest through the button below.

Copyright © 2003 Net Exchange. All Rights Reserved.

Supplement to PAM site. Enhanced background images.