Nov. 5, 2008
Democratic contract never trailed on IEM's Winner Take All prediction market
Traders on the University of Iowa's Iowa Electronic Markets (IEM) predicted from the start that the Democratic nominee for president would be the likely winner of the 2008 popular vote.
Their foresight proved accurate Tuesday, as Barack Obama was elected president and the Democratic contract on the IEM's Winner Take All market paid $1.
Since the Winner Take All market opened in June 2006, the Democratic contract never once dropped in value below the Republican contract.
As of midnight Central Time Monday, 439,431 contracts had been traded on the Winner Take All market since the market opened, for a total value of $204,536. The normalized prices at midnight the day before the election, which are used to determine the market's predictive capability, indicated a 90 percent probability that the Democratic candidate would win the popular vote.
On the IEM's Vote Share market, traders predicted the final two-party vote split at midnight Monday to be 53.5 for Obama and 46.5 for McCain. The contract pay-off on the Vote Share market won't be known until the final vote percentage is determined later, after all votes have been tabulated. Volume on the Vote Share market as of midnight Monday was 16,556, for a total value of $8,342.
Traders also believed there was an overwhelming likelihood that Democrats would expand their control of Congress. As of midnight Monday, the probability of Democrats maintaining control of both the House of Representatives and the Senate was 93.9 percent. The likelihood of gaining seats in the House was at 97.9 percent and the probability of gains in the Senate was at 98.1 percent.
The Democratic contract paid off $1 on all three congressional markets. The volume traded on the Congressional Control markets that opened in August was a combined 38,815 shares, for a value of $14,525.
The Iowa Electronic Markets is operated by the UI's Tippie College of Business as a real-money futures prediction market. Begun in 1988, the IEM is a research and teaching tool that has achieved an impressive prediction record, substantially superior to alternative mechanisms such as opinion polls. Such markets have been significantly more accurate than traditional tools in predicting outcomes ranging from political election results to movie box office receipts.
The IEM can be found online at http://www.biz.uiowa.edu/iem.
STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500
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