Gruca Comments on IEM

If you want a market to be an accurate forecast mechanism, you have to make traders put their money where there mouth is, points out University of Iowa associate professor of marketing TOM GRUCA. Iowa has developed something called the Iowa Electronic Markets, an all-or-nothing futures market where academics use real cash to trade on events. It's best known for its political futures markets, which are widely watched by Washington types and have given good reads on election odds, but lately it's also offered an occasional movie future. The Iowa movie futures have proven to be just as accurate in forecasting 4-week box office returns as HSX has even though it has far fewer participants. Theory says if you have less participants in a market, you have less inputs, and are therefore less accurate. The difference, said Gruca, is money. "We have real money and HSX doesn't," he said. "When people are using real money, they have a motivation to be right versus a motivation to express their opinion."