In this presidential poll, it pays to be ahead
By ROBERT TRIGAUX
Published July 21, 2004
If the presidential race were a financial market and George W. Bush were a stock, would you buy or sell? Would you be a bull or bear when trading shares in candidate John Kerry?
Come Election Day on Nov.2, where would you put your money?
It so happens this year's presidential race is the basis of a real electronic futures market. Run by the University of Iowa's Henry B. Tippie business school, the futures market really lets investors put their money where their vote is.
In the seven weeks since this year's market opened for business, shares in Bush have traded slightly higher than those of Kerry. But the Bush lead has slowly narrowed.
Thousands of participants are investing real dollars in the so-called Iowa Electronic Markets and making their best guess in picking who will take the White House in November. Like a publicly traded corporation, candidates Bush and Kerry each have a share price that moves up and down according to investor expectation.
In early June, Bush enjoyed a commanding lead over Kerry. Since then, Bush's shares have dipped 7 percent, from 55 cents to 51 cents on Tuesday afternoon. Over the same period, Kerry's shares have appreciated 7 percent, from 45.5 cents to 49 cents.
Two cents now separate the value of Bush and Kerry shares. The prices, in effect, reflect the probability of each candidate's winning the election.
Right now, this futures market says, the race is up for grabs.
Created in 1988, the Iowa Electronic Markets is no mere game. Past predictions in the Iowa market have shown an average error rate of just 1.5 percentage points in the week before each of the past four elections. That's more accurate than the final Gallup polls.
University of Iowa economics professor Bob Forsythe, a founder of the Iowa Electronic Markets, says swings in the Bush-Kerry futures market are less volatile than in traditional political polls. That's because profit-motivated investors put their own money in Bush or Kerry shares and think twice before buying or selling.
Traditional polls tend to show big, positive bounces for presidential candidates during their respective national conventions. "That's not credible," Forsythe says. "Our market tends to be much more stable."
Here's how the Iowa market works. On Tuesday, for example, investors could buy a Bush "contract" at the going price of 51 cents or a Kerry "contract" for 49 cents. Investors then sell or buy their contracts as prices fluctuate and the dynamics of the presidential race change.
Investments start at $5 and can go as high as $500, with the money being held through the university.
On Election Day, the futures market settles up. Investors receive $1 for each contract they hold of the winner. Each contract held of the losing candidate would pay nothing. University of Iowa professors call it a "winner take all" market.
Information about how to invest in the presidential trading market, and others run by Iowa Electronic Markets, can be found online at www.biz.uiowa.edu/iem/.)
In a broader sense, experts call the Iowa system a "prediction market" that pools the intelligence and information of interested investors, their money and their profit motive to help best predict future events.
Last summer, a futures market dubbed FutureMAP that would focus on terrorism issues was developed by Pentagon and academic researchers. The idea was, like the Bush-Kerry market, to attract investors who would seek to profit by predicting likely terrorism scenarios.
While promising, bad publicity forced the project to be shelved.
That has not stopped others from stepping in where opportunity knocks.
An Ireland-based Web site called Tradesports.com has evolved from taking bets on sporting events (thus the name) into a futures exchange for any and all manner of world events.
At Tradesports.com, investors can bet - or trade "contracts" - on whether Bush will win this year's presidential election (about 50-50 odds), or even if he will win the electoral votes of individual states. (The web site gives Bush a 50-50 chance of winning the electoral votes in Florida.)
But Tradesports, which calls itself a "person-to-person trading exchange," has ventured where the Pentagon publicly feared to go. Investors can get current odds and trade contracts on whether terrorist Osama bin Laden will be captured, and in which month. Or they can trade contracts on which level (from red to green) this country's Homeland Security level will be in the months ahead.
If the Iowa future market for the White House race is on target, Kerry improved his odds against Bush by naming John Edwards as his vice presidential candidate in early July. But incumbent Bush still holds a slim lead among investors.
Could two little pennies prove the presidential difference?
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-Robert Trigaux can be reached at firstname.lastname@example.org or 727 893-8405.
[Last modified July 20, 2004, 23:13:25]
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