IEM Noted As First Prediction Market

One of the best-known prediction markets is the IOWA ELECTRONIC MARKET, started in 1988 by the University of Iowa. Leading up to the 1996 election, for example, the market offered a "gamble" on whether Colin Powell would be the Republican nominee. Given a $1 payoff per contract, someone who paid 25 cents was expressing the belief that Powell had at least a 25 percent chance of making it. (Powell's perceived chances rose when he kicked off his book tour, but dropped temporarily after the O.J. Simpson verdict, possibly because people anticipated widespread racial discord.) Now after experience with many elections, the Iowa market at claims that its predictions are statistically better than the polls. The Iowa market is regulated by the Commodity Futures Trading Commission (CFTC) and limits total bets per individual to $500. It is run by the University of Iowa's business-school faculty as part of its research and teaching.