Bad cryptography, psychics, Randi and Matt Blaze

How not to protect million dollars:

http://www.crypto.com/blog/psychic_cryptanalysis/
http://reddit.com/info/11qhc/comments
http://www.randi.org/jr/2007-01/011207challenge.html#i4

Randi clearly needs assistance in cryptography. After all, being a
good magician doesn't mean you are a good cryptograper. And, as Blaze
points out, Randi's encoding is potentially ambiguous, which makes the
challenge unfair.

What would be a good protocol for this kind of challenges?
.

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