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Election Results Are Predictable After All...

Late last spring, while reading a piece based on predictions of what Google's initial public offering would eventually be, I became intrigued about the nature of predictive markets which allow participants to bet the chances that some event will occur. Such markets have been shown to make predictions more accurately than polling or expert forecasts.

I kept a copy of that piece, in part, because the best-known of those markets, the Iowa Electronic Market (IEM) run by the University of Iowa, had predicted President Bush would defeat his Democratic challenger Sen. John Kerry by almost 5 percent. That number dropped to less than 1 percent (50.4 vs. 49.5) by Nov. 1. The IEM actually came within 1.1 percent of the final margin of victory for Bush, a great achievement considering the margin of error is typically 1.33 percent.

Operated as a research and teaching tool by six professors at the University of Iowa's Henry B. Tippie College of Business, the IEM is a real-money, web-based futures market. Traders invested as little as $5 or as much as $500 to buy futures contracts based on the outcome of the presidential election.

Iowa-City Press Citizen November 5, 2004

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