News & Events

Iowa Electronic Markets Open Trading on California Governor Recall

The Iowa Electronic Market (IEM) has opened trading on the outcome of the California governor recall election, offering futures contracts on the outcome of the voting.

Traders can speculate on several outcomes of the Oct. 7 vote. Among them are whether Gov. Gray Davis will be recalled, and if he is, who will be elected governor. Listings include contracts for candidates Cruz Bustamante and Arnold Schwarzenegger.

The IEM is run by six professors at the Henry B. Tippie College of Business. It is a small-scale, real-money market developed and used as a teaching and research laboratory. For an investment of as little as $5 or as much as $500, trading in the markets is open to participants worldwide. All trading is done online; complete trading prospectuses are available at tippie.uiowa.edu/iem.

As of Sept. 5, IEM trading shows a 75 percent chance that Davis will be recalled with a predicted vote count of 55 percent in favor and 42 percent opposed. Traders favor Schwarzenegger over Bustamante, saying there is about a 55 percent chance the actor will win more votes on the second part of the ballot than will Bustamante.

Forrest Nelson, IEM co-director and UI economics professor, set up the recall market with his Tippie College colleagues. "These markets give us an opportunity to test the power of the markets in a state-wide election, as opposed to a national race," he said. "It will also be interesting to see what impact non-California traders have on the prices in this setting."

Since its inception during the 1988 U.S. Presidential election, the IEM has established a reputation for forecasting election results with great accuracy. The IEM has recorded an average prediction error of 1.37 percent, compared with an average of 2 to 2.5 percent for polls.

The IEM also has a market for the Democratic nomination for President and a market showing how the Democratic candidates would fare against George Bush in the 2004 elections.

For more information, see the Iowa Electronic Markets website or contact the IEM office at 319-335-0081.


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