IEM Effectiveness Cited

Critics blasted policy-makers Tuesday for dropping a controversial plan to create a futures market to help predict terrorist strikes. Legislators like Sen. Ron Wyden (D-Ore.) may have found the Pentagon's Policy Analysis Market, or PAM, "grotesque." But proponents of "idea markets" say PAM's quicksilver cancellation will rob the country's intelligence agencies of a tool with a strong history of accurately predicting future events. Projects similar to PAM, like the IOWA ELECTRONIC MARKETS, which speculate on election results, have been surprisingly reliable indicators of what's going to happen next. The Iowa market hasn't been perfect -- it forecast a Democrat-controlled Senate in 2002. But over the course of 14 elections, the Iowa Electronic Markets' stock prices were on average a half of a percentage point closer to the results of the actual political races than the final polls were.