Neumann Explains Futures Markets

The Pentagon dropped a controversial plan Tuesday to establish a futures market that it hoped would help predict terrorist strikes. The article notes forecasting powers of futures markets such as the IOWA ELECTRONIC MARKETS, an exchange run by the University of Iowa that invites participants to speculate on the outcome of presidential elections. Its average forecast error for the popular vote in the last four is 1.37 percentage points - about half the average error of major polling organizations. GEORGE NEUMANN, an economics professor and co-founder of the Iowa market, explains how a futures market can outperform opinion polls: "I go out and ask a random sample of people something, I get answers from people who aren't interested, who haven't thought about the issue -- and they'll still have an opinion," he said. "The principle of putting your money where your mouth is doesn't operate in traditional survey questions, but it does operate here -- when you have something at stake."

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