I don’t follow Iraq closely, but recent headlines seem to indicate a turn for the worse and that withdrawal of U.S. troops is now on the table.

It should not have been difficult to predict that invasion would turn out badly, but politicians make the same mistakes (less charitably–tell the same lies) repeatedly, in particular when it comes to war (one reason why).

Among all the tragedies of the Iraq war, a small one is that there was no set of conditional prediction markets to consensus check (an analogue of “fact check”?) likely outcomes. An arbitrary expert can always be countered with another arbitrary expert. The nice thing about prediction markets here is that they converge to a single consensus probability (or set of interlinked probabilities for a set of claims) given the possibility of arbitrage. Faced with a market that says what a politician wants to do will probably have ill effects, the politician can ignore the consensus, but can’t counter it will an equivalent, as can be done with any expert.

So should the U.S. withdraw its military from Iraq? Unfortunately I do not know of a conditional market set up to guess the impact. Iraq-related markets I found:

• U.S. military deaths in Iraq: last trade indicates the first month with no U.S. military deaths from hostile action in Iraq will be May 2008. This would seem to indicate an expectation of near complete withdrawal by then, or something magical.
• There will be fewer than 100,000 US troops in Iraq in April 2007 last traded at 24, or about a 1/4 chance that at least a serious troop level reduction will start soon (from 144,000 in October).
• Announcement of US Troop Withdrawal from Iraq, last trade indicates a 10 percent chance of such an announcement before the end of 2006.

Unfortunately all of these are play money markets and all only concern U.S. troops. What about Iraqi civil war or economic performance? Fortunately we can use one of these markets as an input for a conditional market that attempts to guess the impact of withdrawal on Iraq. I used the second, as it maps directly to a probability, unlike the first, and is not deemed to be an incredibly long shot, unlike the third.

The Iraqi Body Count currently says a lower bound of 47,781 Iraqi civilians have been killed since the invasion. I assume if that lower bound moves to 100,000 or greater by the end of 2007, a civil war has occurred or is in progress.

So I set up Iraq withdrawal and civilian casualties on Inkling, with four stocks:

• USLEAV07 true AND >= 100k IBC EOY 2007
• USLEAV07 true AND < 100k IBC EOY 2007
• USLEAV07 false AND >= 100k IBC EOY 2007
• USLEAV07 false AND < 100k IBC EOY 2007

I set the intial price of the first two at 12 each and the second two at 38 each, reflecting the 24 percent chance of substantial troop reduction given by Newsfutures traders and a 50/50 chance of civil war (I don’t know of a probability source for the latter). In theory prices should move to whatever traders think the probabilities actually are regardless of their initial settings.

There are two major problems with this experiment. First, a spike in violence may make troop reductions more (or less) likely, which makes it harder to divine the impact of troop reductions on violence.

Second, Inkling markets are sometimes at great variance with others or common sense, e.g., Hilary Clinton is given a 28 pecent chance of winning the 2008 Democratic nomination, others have her around 50 percent.

I surmise that there is something wrong with Inkling. That something could be just that it has no users. I set up this experiment on Inkling because it was trivial to do so, but I’d really like to see Tradesports/Intrade set up real money contracts along these lines.

Update: The first problem can be removed by ignoring deaths through April 2007. I will create a new market reflecting this…

Iraq withdrawal and civilian casualties (improved) is running with the following stocks:

• USLEAV07 true AND IBC >= 40k May-Dec07
• USLEAV07 true AND IBC < 40k May-Dec07
• USLEAV07 false AND IBC >= 40k May-Dec07
• USLEAV07 false AND IBC < 40k May-Dec07

Update 20061127: The improved market is now actually running, was previously held for admin approval.

Update 20061211: Followup posted at Midas Oracle.

William F. Buckley admits that the U.S. military adventure in Iraq is a defeat, but willfully fails to learn anything from it.

It is healthier for the disillusioned American to concede that in one theater in the Mideast, the postulates didn’t work. The alternative would be to abandon the postulates.

His two postulates amount to an assumption that wherever the U.S. intervenes people will act in accordance with U.S. politicians’ wishes. Nevermind that this doesn’t even work within the U.S. jurisdiction.

Buckley attributes defeat soley to “Iraqi animosities.” Even if that were the sole cause blame can be pinned firmly on U.S. politicians who were very well aware of Shiite/Sunni/Kurd/Christian/etc. “animosities” as leveraging these was a major component of U.S. policy toward Iraq after the 1991 Gulf War. However, Buckley ignores economic mismanagement, Abu Ghraib and doubtless many other idiocies endemic to political management, nevermind military-political management. To do so would be to accept blame and teeter on the edge of admitting error.

If Buckley hopes to fence off his “postulates” (and thus U.S. policy) from criticism by admitting defeat in this one instance I hope he fails miserably, but I fully expect he and other advocates of interventionism will succeed in this subversion of truth. The long history of poor outcomes of U.S. intervention in the Middle East, elsewhere, and within the U.S. jurisdiction (domestically) is forgotten completely and is never learned from.

I have probably suggested too many times that prediction markets could help remind voters that the most likely outcomes are not those predicted by politicians.

On a related note: So what if Iraq splits? A jurisdiction is not a sacred entity.

Via Mike Godwin. You must check out Godwin’s awesome site design. (Don’t worry, I still hate Macs.)

Cost of War in Iraq, a new paper from Linda Bilmes and Joseph Stiglitz, has already been discussed, at least superficially, on a large number of blogs. Comments at Marginal Revolution helpfully cite a number of related papers.

Bilmes and Stiglitz conservatively project that the total economic costs for the U.S. jurisdiction at $1 to $2 trillion. Direct budgetary costs are projected to be $750 billion to $1.2 billion. I have only skimmed the paper, which looks interesting enough, but nothing really new.

I’ve mentioned increasing cost projects several times last year and before, directly in Trillion dollar fraud (August), $700 billion fraud (July) and A lie halfway fulfilled (January 2005).

I won’t bother to explain the fraud this time, read the past posts. Hint: it involves repeatability.

One thing I’m struck by, skimming comments contesting Bilmes and Stiglitz (the political ones, not the technical ones concerning borrowing costs should be included, though they overlap) is that after the fact, I think many people would claim that the invasion was justified, economically and otherwise, regardless of the final cost. $5 trillion? (NB, that is a hypothetical, not a prediction!) It was worth getting rid of Hussein and deterring would-be Husseins. $10 trillion? Just goes to show how nasty “our” opponents are. $100 trillion? Civilization must be destroyed to save civilization!

All the more reason to be cognizant of probable costs before going to war. There’s not really a need for prediction markets here. Just multiply proponents’ estimates by ten. However, people stupidly believe words that come out of politicians’ mouths. Prediction market estimates could, ironically, provide a countervailing authority.

A better way? See Wright, Scheer, Zakaria, Hardar, Tierney, and Pape.