Forsythe Comments on IEM's Record

The Defense Department and the Bush Administration quickly stepped away from backing a futures market aimed at forecasting events, which would have allowed traders to speculate on the potential for terrorist attacks, assassinations and the like after the idea was branded as ludicrous and repugnant by Democratic lawmakers. Theoretically, futures markets are good at forecasting event outcomes first, because the traders active in them have access to far more information as a group than they do individually and, second, because new information can be quickly transmitted through the market, via price. In practice the theory holds up well. Ever since 1988 the UNIVERSITY OF IOWA has run a futures exchange called the Iowa Electronic Markets, best known for its political futures markets, where traders bet on election results. In the past four presidential elections the market's election forecast was more accurate than polling data.