Neumann Comments on Futures Markets

A story about the U.S. Pentagon's plans to create a futures market where investors could speculate on assassinations and political coups in the Mideast says that one of the more nontraditional uses of futures contracts has been at the University of Iowa, where since 1988 the Iowa Electronic Markets has facilitated the buying and selling of futures in presidential election results. It's a way of taking established, proven economic theory and applying it to social and political science, said GEORGE NEUMANN, professor of economics and applied mathematics and one of the founders of the program. The markets - fuelled by the incentive of people involved to prevail by using their experience and knowledge - can better predict outcomes than a poll of the general population, he said. "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. "In the markets, you get a real selectivity principle going. Only those who think they know something about trading or about the underlying fundamental issue come in. The principle of putting your money where your mouth isn't doesn't operate in traditional survey questions, but it does operate here when you have something at stake."