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Rietz Comments on IEM Accuracy

Many models that mix economic and political data forecast George W. Bush would be re-elected. They were off on the margin of victory. At least one indicator was more accurate this time. The Iowa Electronic Markets (IEM) let participants invest $5 to $500 in web-based futures contracts that predict the vote share each candidate will receive. The vote share market was off 1.1 percent election eve, better than the 1.33 percent average prediction error in previous cycles. "While the error was small, this race was just so close" that a small shift in contracts would have spelled a different result, says THOMAS RIETZ, IEM co-director and associate professor of finance at the University of Iowa. As of midnight Nov. 1, the IEM showed Bush with 50.45 percent of the popular vote, vs. 49.55 percent for Kerry. The actual result as of Nov. 4 showed 51.54 percent for Bush and 48.55 percent for Kerry.

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