July 7, 2011 | The Gazette
The Iowa Electronic Markets’ 2012 presidential election prediction market has opened, and early trading gives President Barack Obama an edge in his re-election bid.
As of 9 a.m. on Thursday, July 7, the Democratic contract was trading for 57.2 cents on the IEM’s Winner Take All market, which means traders believe Obama has a 57.2 percent probability of being re-elected.
The GOP contract was selling for 42.7 cents, which means traders believe that the Republican Party’s eventual nominee has a 42.7 percent probability of winning the 2012 general election.
The IEM is a real-money prediction market operated by researchers at the University of Iowa’s Tippie College of Business and is open for trading to the general public. The presidential election market opened July 1.
Payoffs will be determined based on the popular election results of the 2012 general election. Contracts for the candidate who receives the most popular votes pay $1; losing contracts pay nothing. This payoff structure means that IEM prices reflect the probability of each candidate’s winning the nomination.
The trading market, contract prospectuses and registration information can be found on the IEM 2012 U.S. Presidential Election Markets website at tippie.uiowa.edu/iem/markets/pres12.html.
Begun in 1988, the IEM is a research and teaching tool that has achieved an impressive prediction record, substantially superior to alternative mechanisms such as opinion polls. Such markets have been significantly more accurate than traditional tools in predicting outcomes ranging from political election results to movie box office receipts.