IEM allows users to buy shares in candidates


Share
Posted Online: April 07, 2007, 12:00 am
Comment on this story | Print this story | Email this story
By Jenny Lee, jlee@qconline.com

While some people watch the New York Stock Exchange, others watch the Iowa Electronic Markets to see who might win the 2008 presidential election.

People use real money to trade "shares" of political candidates in the Iowa Electronic Markets (IEM) to predict the outcome of presidential elections. The markets are supervised by the University of Iowa Henry B. Tippie College of Business faculty, who use IEM for research and teaching purposes.

Results have shown that a political prediction market, like IEM, can forecast the outcome of an election better than national polls.

"We run markets tied to outcomes of the election," said Thomas Rietz, a finance professor at the University of Iowa in Iowa City. "People can sign up with us on the Internet. The contracts we trade have values that apply to the election outcome.

"People are more willing to pay more for candidates they think are more likely to win," Mr. Rietz said.

The IEM has two types of markets -- a winner-take-all market and vote-share market.

A winner-take-all contract is available for both the nominating process and the general election.

A participant buys a winner-take-all contract for $1. If the participant's candidate wins the nomination, that contract is worth $1. If the candidate loses, the contract is worth nothing. Participants can buy winner-take-all contracts for the general election outcome, choosing which party will take the White House rather than a specific candidate.

The vote-share contract is available only for the general election, and pays off proportionately to the percentage of the vote the selected party receives.

Once a nominee is named, the names will be updated on the Web site.

Since IEM was created in 1988, the University of Iowa faculty has studied the results of the markets, national polls and the election. It's the longest established political prediction market, Mr. Rietz said.

Research shows that the markets predict the election outcome 76 percent of the time, better than about 600 polls, Mr. Rietz said.

He said the markets are a better predictor because they ask traders what they think will happen in the future. Pollsters ask voters who they're going to vote for today -- a sentiment that can change at any time.

In a market, traders can see what everybody else thinks and tailor their prediction, while voters in a poll don't have that advantage, Mr. Rietz said.

Traders from all over the world participate in the Iowa Electronic Markets. More than 100 universities have enrolled in the markets to teach students about accounting, finance, macroeconomics, microeconomics and political science, the IEM Web site says.

Other political prediction markets, such as Intrade, also use real money, while newsfutures uses play money.

On the 'Net

Iowa Electronic Markets: www.biz.uiowa.edu/iem

Intrade: www.intrade.com

newsfutures: www.newsfutures.com














 



Local events heading








  Today is Monday, April 21, the 111th day of 2014. There are 254 days left in the year.

1864 -- 150 years ago: The female sex seems to have gone crazy on the subject of dry goods. When high prices keep them from increasing their wardrobes, they turn to stealing. Yard goods, hats, shoes and other items are being picked up and carried home.
1889 -- 125 years ago: Members of Everts Commandery No. 18, Knights Templar, under Commander H.C. Cleaveland, marched from the Masonic Temple to Trinity Episcopal Church for their annual Easter services.
1914 -- 100 years ago: Nate Hultgren pitched the Augustana College baseball team to a 10-3 victory over Carthage, striking out 11 men and allowing only four hits.
1939 -- 75 years ago: Marvel Leonhardi, a Rock Island High School senior, was the winner of an essay contest on advertising sponsored by The Argus and Advertising Age, a national advertising publication.
1964 -- 50 years ago: The Augustana College band drew a crowd of 1,200 people for its annual home concert in Centennial Hall. The size of the crowd was indicative of the fact the band is rapidly approaching the stature of the Augustana Choir.
1989 -- 25 years ago: A benefit to raise money for extracurricular activities in the Rock Island Milan School District will be April 27 at the Quad City Downs harness race track. People buying $17.50 tickets to the second annual "Night at the Quad City Downs" will be entitled to an evening of harness racing and dinner.






(More History)