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Newman Comments on Market Effectiveness

There are financial markets for just about everything: the future price of coffee, the weather, barge freight rates and whom the Democrats will nominate for president. And until Tuesday, the Pentagon was ready to back creation of another market, one that would have allowed investors to speculate on assassinations and political coups in the Mideast. One of the more non-traditional uses of futures contracts has been at the UNIVERSITY OF IOWA, where since 1988 the Iowa Electronic Markets have 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 Neuman, professor of economics and applied mathematics and one of the founders of the program. The markets--fueled 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, Neuman 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." Neuman said he is convinced the concept of a market established to gather data will be revisited. "This idea is so fundamentally interesting," he said. "They'll be back at it."

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