Iowa Electronic Markets Trade in Presidential Futures
The IEM has opened its "winner-takes-all" market where contracts for candidate with the largest share of the popular vote pay $1, while contracts for the losing candidate pay nothing.
Operated as research and teaching tool by six professors at the University of Iowa's Henry B. Tippie College of Business, the IEM political markets are open to the public. For an investment of as little as $5 or as much as $500, anyone can buy futures contracts based the outcome of the 2004 presidential election.
The IEM "winner-takes-all" market shows a fairly close race based on early trading. As of June 28, George W. Bush has a slight lead over John Kerry, with Bush contracts at about 53 cents, compared to Kerry contracts at 47 cents. IEM prices reflect the probability of each candidate's winning the election. Current IEM prices can be viewed at the IEM website.
Since its beginning in the 1988 U.S. presidential election, the IEM has established a reputation for forecasting election results with great accuracy, predicting the outcome of the popular vote with an average election eve prediction error of 1.37 percent.
"Because traders have a financial stake in the outcome, they make their choices based on who they think has the best chance of winning, not necessarily on who they want to win," said Joyce Berg, an IEM co-director and UI professor of accounting. "We've found this market-based approach to be a very informative way to predict outcomes of elections and other events."
The IEM has also opened a vote share market for the 2004 presidential election to determine how the nominees would fare against George W. Bush). Payoffs in this vote-share market are based on the percentage of the popular vote that Bush and Kerry will receive in the 2004 election.
Prices in this market show that Bush would get about 54 percent of the popular vote, compared to Kerry at 46 percent. "This is a major difference between the IEM and most opinion polls. We've shown Kerry consistently trailing Bush whereas the polls have shown Kerry ahead or the two candidates switching positions," said Berg.
For more information, contact the IEM office at (319) 335-0881, or firstname.lastname@example.org.
Contact: George McCrory, UI News Service, 319-384-0012