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Berg Comments on IEM Presidential Market Success

In a year when pre-election polls fluctuated, election markets managed to send a relatively consistent message. From the end of the Republican convention on September 2 through Election Day, the odds on President Bush's eventual victory never dropped below 50 percent on the commercial web site. On election eve, a $1 contract for Bush to win closed at 53 cents on the dollar, meaning he was believed to have a 53 percent chance of winning. On the Iowa Electronic Market, run by the University of Iowa, Bush consistently led in the betting. A late Kerry surge brought the Democrat up to only 49.5 percent in the "vote share" market -- a 1.5 percent overestimate (as calculated for a two-way race), which was nevertheless within the market's historical error rate. And there was no need to sweat all night over swing states Florida and Ohio: Election followers had only to log on to to see that they were pegged in the GOP camp. According to Iowa accounting professor JOYCE BERG, the Iowa market stayed steadier and closer to the final results throughout the year than polls, which underestimated Bush's final vote share before the Republican convention, then overestimated it until the first debate. Even after the last debate, "the polls were all over the map" compared with the markets, says Berg.

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