The Right Coast

June 20, 2004
Iowa electronic market shows Bush uptick
By Tom Smith

The Iowa Electronic Markets are essentially a betting exchange on future political events. Recent scholarship suggests markets such as these do a very good job processing information about the probabilities of future events. For example, the HSX play market, where you can bet play money on who will win Oscars and how films will do at the box office, does a better job predicting these events than do the professionals in the trade press.

Exactly how markets manage to do this seems not to be well understood. I can say that the law of corporate finance people don't have any deep understanding of this. For one thing, the math is very hard and you have to resort to simulations. Curiously, though, it seems markets do not have to be that big or thick or efficient to do a good job predicting the future.

So that makes this uptick in Bush futures all the more interesting. It coincides with the 9/11 commission fandango.