IEM Cited In Story on Making Predictions
October 18, 2003 | Science News OnlineA story about how economists are exploring so-called betting markets as prediction tools tells readers that to get a sense of how future-predicting markets operate they should consider the IOWA ELECTRONIC MARKETS, which is based at the University of Iowa in Iowa City. Suppose two candidates, A and B, are facing off. Anyone can enter the market by putting some money into the pool; for each dollar an investor puts in, he or she receives two contracts, one of which will pay $1 if candidate A wins, and one of which will pay $1 if candidate B wins. Once contracts are in circulation, participants can buy and sell them to each other at a trading Web site. If the going rate for a candidate A contract is 53 cents, for instance, then the market as a whole thinks candidate A has a 53 percent chance of winning. Once the election results come out, participants cash in their winning contracts from the pool -- the more contracts of the winner they have, the more money they make. In addition to these winner-take-all markets, the Iowa project runs markets in which participants can bet on what share of the vote each candidate will receive.
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