Iowa: Market trading predictions v. Polling predictions

[Adelante]

The year was 1988, and Democratic presidential-nomination hopeful Jesse Jackson had just shocked the nation by winning the Michigan primary. It was an upset that pollsters hadn't predicted, and UI faculty members Nelson Forrest, George Neumann, and Robert Forsythe wondered "why the polls did such a bad job," in Forrest's words.

So the three devised what Forrest called "a tool for collecting information about certain events" - the Iowa Electronic Markets.

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"We've looked at 600 polls in the past. In 74 percent of those, the market has been than the polls," said Joyce Berg, a UI associate accounting professor and Electronic Markets board member. "That gives us a lot of confidence."

With this type of success rate, the market has become a player in predicting outcomes. Sen. Hillary Rodham Clinton, D-N.Y., leads the Democratic market, with Sen. Barack Obama, D-Ill., and former North Carolina Sen. John Edwards trailing. On the Republican side, Rudolph Giuliani, ex-mayor of New York City, is on top, with former Massachusetts Gov. Mitt Romney in second and former Tennessee Sen. Fred Thompson in third.

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"The people who run Electronic Markets claim it's more accurate than polling, but I just see it as looking at it two different ways," said Redlawsk, who occasionally uses the market in class and has also conducted polls of his own. "It's not that the traders know more than the average person … polling isn't in real time. Polling is a slice of time. Electronic Markets can adjust every day."

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