Wanna Bet?

"When men speak of the future, the gods laugh."

       - Chinese proverb

While reading Andrew Sullivan's Daily Dish a couple of days ago, I saw where he had linked to the Iowa Electronic Markets where speculators can legally wager up to $500 on the outcome of the 2004 presidential election. Wondering what the I.E.M. is, I set out to get a little more information about it. Suprisingly, there was quite a bit to be found, not only about the Iowa Market, but several others as well.Two of the best articles I uncovered were at The New Yorker and Tech Central Station websites.

The not-so-recent New Yorker piece by James Surowiecki is titled "Decisions, Decisions." In it, Surowiecki talks about how these markets allow people to speculate on almost anything, including political races. Just as in stock and commodity exchanges, they "bet" on the outcome of an event based on the best information they have. The result is profit or loss, depending on the accuracy of their bets. Mr. Surowiecki tells us that these "betting" markets predict the future with much greater accuracy than op-ed writers, tv pundits and polls typically do:

"The Iowa Electronic Market routinely outperforms major national polls. In the last four presidential elections, for instance, almost six hundred different polls were conducted, and the I.E.M.'s market price on the day each of them was released turned out to be closer to the election results seventy-five per cent of the time."

The more recent Tech Central Station story is titled "Sell Bin Laden, Buy Bush!" Written by Jan Arild Snoen, it goes into a bit more detail than The New Yorker article does, which makes it a more entertaining read. Snoen talks about how these markets have sprung up, the range of bets you're able to make, and how they, like a regular stock market, are accumulators of information that provide snapshots of likely future outcomes:

"Whenever the U.S. troops have a particularly bad day in Iraq, Bush stumbles badly in a speech, the employment data are suprisingly good or new opinion poll data are released, the market price for Bush contracts moves. For those too busy following all the news, just checking the TradeSports homepage gives you an instant update on the state of the Bush campaign."

Each of these stories provides good background information on the usefulness of these new markets in forecasting the future, not only in politics, but in business and governmental matters. If knowing more about them interests you at all, I would commend them both to your reading.

In the meantime, anyone out there who thinks he knows who's going to win this fall can "put his money where his mouth is," as my late father was fond of saying. And in the process, we non-gamblers can reap the benefits of your shrewd investment research by getting a heads-up on how it's all going to turn out in November. Pretty good deal for both of us I'd say--that is, if you're an astute speculator. I never was. 

Update: Just in case you want to know where Bush and Kerry stand after the first three days of trading, you can check that out right here. At the moment, it's Bush 55%, Kerry 45%.