Iowa Electronic Markets Forecasted Bush Win in Presidential Election
At midnight on Nov. 1, the IEM's vote share market had Bush earning 50.45 percent of the popular vote, compared to 49.55 percent for Kerry. The actual vote count as of Nov. 4 showed 51.54 percent for Bush and 48.55 percent for Kerry. The IEM's average absolute prediction error for this election was 1.1 percent, below its historical average of 1.33 percent, according to Tom Rietz, IEM co-director and associate professor of finance at the University of Iowa.
The predicted margin of victory was very close throughout the summer and fall, with Bush leading for all days except for a few near the Democratic National Convention.
Operated as a research and teaching tool by six professors at the University of Iowa's Henry B. Tippie College of Business, the IEM is a real-money, web-based futures market. Traders invested as little as $5 or as much as $500 to buy futures contracts based on the outcome of the presidential election.
The IEM's winner-take-all market, where prices reflect the probability of each candidate's winning the election, predicted a close race. On Nov. 1, traders gave Bush a 51.4 percent chance of winning, compared to a 48.6 percent chance for Kerry. Throughout the summer, the IEM had shown a fairly close race. After the Republican Convention, the IEM showed Bush's probability of winning the election at 70 percent. That lead, however, dropped after the three presidential debates and continued that drop to election eve.
IEM directors plan to liquidate the markets today, using the vote count reported in the New York Times. In the vote share market, the liquidation value will be $1 times each candidate's share of the two-party popular vote in the vote share market. In the winner-take-all market, the liquidation value will be $1 for each Bush contract, and nothing for Kerry contracts.
The IEM also offered a market on which party will control the House and Senate in the Congressional elections. This market had the most likely outcome of the Republicans retaining control of Congress and gaining seats in both the House and Senate.
Started during the 1988 U.S. presidential election, the IEM has established a reputation for forecasting election results with great accuracy. It has predicted the outcome of the popular vote with an average prediction error of 1.33 percent. Research has shown that the IEM is about twice as accurate as polls conducted before presidential elections.
The IEM had approximately 3,100 traders who invested $356,000 in the political markets.
Contact: George McCrory, UI News Service, 319-384-0012