PERVERSE INCENTIVES....Instapundit weighs in with a typically sober assessment of the Pentagon's decision to kill its "terrorism futures market":

THE IDIOTS WIN A ROUND: Faced with know-nothing criticism from members of Congress, the Pentagon has abandoned its plans for a "futures market" to predict terror.

....Did the Congressional critics know about any of this stuff? Fat chance. Do they care that they were responding lamely and out of ignorance? Nope. Does it matter that this sends exactly the wrong signal to the Pentagon about the consequences of efforts to find original ways to fight the terror war? Yes. Will the members of Congress take any responsibility for that? Nope.

Since no one in the pro-war camp seems to understand the actual issue here, let me take a stab at it. The problem isn't that the Pentagon's idea wouldn't work — that's an empirical question that can only be answered with actual research — the problem is the perverse incentives it supplies. Suppose, for example, that a terrorist killed Dick Cheney and a couple of days later there was a photo of some guy in the New York Times grinning because the government had just sent him a check for $10,000 thanks to his shrewd investment. Does it still sound like a good idea?

Do we really want to create a government sponsored market that creates a whole class of people who are actively rooting for terrorist events to occur? Remember, there are some things that are bad ideas even if it turns out that they work well for their ostensible purpose. It's the law of unintended consequences, something that Paul Wolfowitz apparently understands better than the blogosphere.

(And given his recent experience with it, I suppose that comes as no surprise....)

UPDATE: Brad DeLong has some expert commentary, although it's more about whether the plan would actually work, not about the issue I raised.