They say the market as a whole is smarter than any individual investor. Therefore, it ought to be exponentially smarter than any one political pundit. That, anyway, is the theory behind the Iowa Electronic Markets, a project run by the University of Iowa's business school. Just as investors can buy futures contracts on the price of pork bellies, political junkies can risk real money on political outcomes—such as, in the graph below, the 2004 Democratic nomination.
In past elections, political futures markets have outperformed public opinion polls as predictors better than half the time. It looks like the market's crystal ball is still working. By late October, when a Washington Post/ABC News poll found Howard Dean leading Joseph Lieberman, John Kerry, Wesley Clark, and Dick Gephardt by only three or four points each, Dean had already emerged as the market's clear favorite. Maybe Al Gore picked up a few easy bucks before making his endorsement?
Graph: 2004 Democratic National Convention Nomination Market—not available online
Start your day with Reason. Get a daily brief of the most important stories and trends every weekday morning when you subscribe to Reason Roundup.