Iowa Political Stock Market: Putting money where your mouth is.

Over at the Iowa Political Stock Market, people put up real money trading on the future prospects of political candidates. I lifted the following block of text directly from the lead post of a thread at the Politics and Campaigns DU forum, because I have seen no mention of it here, and it is interesting. Both the original thread and the following text should be credited to Cogito. Cogito also included info and links on the latest CNN poll data for the Presidential Elections in his post, but I will leave that part out of this one. At the bottom of this post I will leave the direct link to Cogito's original thread in the other forum:

"Over at the Iowa Political Stock Market Dean fares the worst against Bush in the general election of all the candidates. Check out the 2004 vote share market that sells contracts that payoff on the vote share of the candidate in the 2004 election when the candidate is the Democratic nominee. For example the Dean contract in that market pays Dean's vote share against Bush when Dean is the nominee and pays zero otherwise. Similarly, the Bush|Dean contract pays Bush's vote share against Dean when Dean is the nominee and pays zero otherwise.

Because each contract only pays if the candidate is actually the nominee we have to divide the value of the contract by the probability the candidate is the nominee in order to calculate the expected vote share for the candidate given that he is the nominee. That is easy to do since the Dean contract plus the Bush|Dean contract will together pay out $1 if Dean is the nominee and zero otherwise, the sum of those contracts is the market assessed probability Dean is the nominee. Thus,

Vote Share for Dean =
(Price of Dean contract)/(sum of Dean + Bush|Dean contract prices)

We can do the same calculation for all the candidates. A graph of the expected vote shares for each candidate over time can be found here. http://www.biz.uiowa.edu/iem/markets/ (click the "Current Quotes" link on that page, then go to the race being handicapped). Currently Dean trails the Democratic pack with an expected vote share of 45% while all others are either at or above 50%.

This academic paper http://www.biz.uiowa.edu/faculty/trietz/papers/Decision%20Support.pdf shows that if the Republicans had paid attention to the Iowa Political Stock markets in 1996 they would have seen that Dole was not a strong candidate against Bush. The paper says that Colin Powell (another general) would have done much better than Dole against Clinton and would likely have beaten him. But the Republicans did not work hard enough to get Powell to run and the rest is history.

The Iowa markets are not perfect by any stretch of the imagination, but, they combined with many polls reinforce the same message...Dean is going to have greater trouble getting elected compared to the other leading candidates."


Here is the link to Cogito's thread at the other forum: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=108&topic_id=102468&mesg_id=102468

If so I need to buy some Clark stock, and some Bush stock for the Dean nomination outcome (and if Dean wins the nomination I'll do my best to lose my money).

I wonder how many Dean supporters will bet the same thing.

surely you could put the same amount of money you donated to Dean on Dean stock, and be guaranteed your donation paid back to you from a Bush-better. Who would refuse a 90-100% bet?

Very informative and intriguing. I hadn't seen the thread in P/C, so I might have missed this if you hadn't posted it. Hmm...very interesting indeed.

to waste on this speculation.

you get the chance to bet whether Dean will beat Bush once nominated...
and you say it's a wasteful speculation

NOW THAT'S CONFIDENCE!!!

Those holding Bush vs. Dean shares include Dean hopefuls, Bush hopefuls and realists.

Those holding Bush vs. ABD shares are primarily ABD hopefuls.

And they are betting on outcomes, can we not agree on that?

They're not betting because they back any candidate, but because they've done their market research and are making an assessment of the outcome based on their best data and skills. They have a financial incentive to be right, and don't care about partisan leanings.

(BTW, I can't see what you're responding to b/c I have sticky on ignore. He's the only person I've ever put on my ignore list, so I have no problem identifying him. :))

Interesting....

If the more active democrats really want to win in 2004 I hope they are paying attention.