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IEM Predicted Recall Vote, Schwarzenegger Win

Arnold Schwarzenegger On the day before the California recall vote, the Iowa Electronic Markets (IEM) accurately predicted that Gray Davis would be recalled and that Arnold Schwarzenegger would be elected California governor.

The IEM, a political futures market operated by six professors at the Tippie College of Business, has a reputation for accurately predicting elections since its inception in 1988, but it was especially accurate in projecting the California governor recall vote. The margin of error was about 1 percent in this race, outperforming many polls.

On October 6, the IEM's vote share market showed that 54.2 percent of voters would vote "yes" for a recall; the actual vote was 55.4 percent. The IEM showed that Schwarzenegger would win with 47.2 percent of the vote; the actual vote was 48.6 percent. Figures for Lt. Governor Cruz Bustamante were just as close; the IEM predicted he would get 32.1 percent of the vote, while the actual vote was 31.6 percent.

Tom Rietz, IEM co-director and UI associate professor of finance, said that on election eve the average absolute prediction error of the IEM for predicting the Yes/No vote share was 1.17 percent. The average absolute prediction error for predicting the vote share of the gubernatorial race was 0.94 percent.

The IEM 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. The market operates online at tippie.uiowa.edu/iem>.

Since the time of 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 in presidential elections, 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 predicting how the Democratic candidates will fare against George Bush in the 2004 elections. So far, the IEM shows the Democrats could defeat Bush.

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


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