IEM Futures Market Explained

Since 1988, the University of Iowa has run a forum where traders can buy and sell contracts on who will prevail in the world's most-watched quadrennial race. The IOWA ELECTRONIC MARKETS (IEM) is the best known of the so-called "political futures" markets. It works much like the local racetrack. People buy contracts on who they think will win, not who they want to win (as in a poll). With real money on the line (trades range from $5 US to $500 US), there's no room for wishful thinking or sloppy sentiment. People bet on perceived winners. So Democrats could end up voting for Kerry but betting on Bush ... and vice-versa. So what is the University of Iowa's winner-takes-all market saying about the 2004 election? As of Nov. 1, Bush was ahead, but his lead was shrinking. The Bush contract (which cost more than 70 cents US in late September) was going for about 54 cents US. The Kerry contract cost 46 cents US. That means that the IEM's participants believe that Bush has a 54/46 chance of getting at least one more vote than John Kerry.

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