IEM Cited in Story on Pentagon Futures Market

A story examining the Pentagon's failed plan to launch a futures market that would have allowed traders to speculate on such things as the likelihood of a suicide bomber striking the Middle East says that other futures markets have been used to forecast outcomes in nonfinancial events. Since 1988, the UNIVERSITY OF IOWA has operated the IOWA ELECTRONIC MARKETS, in which traders buy and sell contracts forecasting results of presidential and other elections. Although the average bet is only $50, the theory is that requiring participants to put real money at risk filters out people who don't know much about the subject. With money at stake, one is likely to bet for the candidate he expects to win, not the one he wants to win. In theory, this market distills the best thinking of knowledgeable participants, the same way the stock market uncovers the consensus about whether a stock will go up or down. And studies have shown that the Iowa market identifies the eventual presidential campaign winner nearly 100 percent of the time. It's more accurate than standard polls about three-quarters of the time.