Political Market Failure?

The Iowa Electronic Markets' claim to be more accurate than political polls. Take a look at what happened at the IEP's Democratic Presidential Nomination Market this past week. The Dean futures peaked at $0.75 per share on January 7 and were still selling at $0.50 per share the day before the Iowa caucuses. Yesterday Dean futures were selling at a low of $0.16. Meanwhile just one week before the caucuses, Kerry futures were selling between 3 and 4 cents per share. Yesterday they had bounced to a high of $0.38 per share. As for Edwards, he was not even listed on the IEP, but we can assume that the rest-of-field (ROF) futures now reflects his standing in the markets. ROF futures hit $0.24 per share yesterday.

Looks like the IEP suffered a "Crash of '87" moment this week.

Comments

[SPUR]

The one guy who called Iowa right is Al with BigLeftOutside.org/com - right on the button and the reasons behind it to -- the surprising thing is that he is in South America somewhere -- perhaps distance does one good...

[TomHynes]

Interestingly, http://www.tradesports.com had about the same numbers - dropping quickly from a high of 70%, to 50% the day before, to 20% now. Why do we need a government market (University of Iowa) when capitalism gives us the same information?

Ron, if you are so smart, how come you aren't rich? If you believe that you can outsmart the iowa market or tradesports by reading polls, put your money where your mouth is.

There is nothing unusual per se in a 50 point drop. In a close race, both parties will be at 50 percent, and the next morning one will be at zero.

[Ron Bailey]

Alas, I'm not that smart. I'm just pointing out an interesting result. The fact is that markets always clear--it just happens very rapidly sometimes.

[Andrew]

I used to follow what the London bookies were offerin, but they got it wrong in '92, giving Bush I over Clinton. The London line will appear in the papers sometime this campaign season.

[Alex]

"There is nothing unusual per se in a 50 point drop."

Quite the contrary; a 50 point decline over such a short time interval is certainly unique among all IEM's prior presidential betting markets. More significantly, the IEM Dean dump lagged the Iowa poll numbers significantly. I noticed they switched over to a cumbersome web trading interface from telnet-- maybe this has discouraged more active trading.

[Alex]

Tom, despite the IEM's government affiliation, it shares with Tradesports a true (paramutuel) market-determined odds framework. It's hobbled (I think) by an awkward user platform and low (

[Alex]

AUTHOR: Alex
EMAIL: [e-mail]
IP: 66.108.104.59
URL:
DATE: 01/21/2004 05:19:55

[Alex]

AUTHOR: Alex
EMAIL: [e-mail]
IP: 66.108.104.59
URL:
DATE: 01/21/2004 08:00:30

[amr]

Pundits and pundit wannabes were all very reluctant to recognize what all the polls saw: Dean and Gephardt were faltering and Kerry was surging (along with Edwards). Go to NRO's "The Corner" and see everyone's predictions. Almost all Dean and Gephardt picks due to labor loyalty and organization. The Iowa Poll had it pegged right on Saturday, but no one knew if it was any good. I just wish I would have put money in, I could have cleaned up.

One thing I don't know about IEM is how they split off candidates from the field.

[Ron Hardin]

The crash of 87 was from portfolio insurance. Everybody could avoid large losses using strategies involving simultaneous trades in stock and stock futures markets. When the values of stocks started down, since everybody was protected, the markets resolved the contradition by violating one of the assumptions, namely it was not possible to simultaneously trade in two markets. The lesson of 87 is:

Markets reconcile contradictions by reframing the problem.

Another result might be that the government can always make it worse.

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