WASHINGTON, 4 January 2008 — On the eve of the first nominating contest of the 2008 US presidential race, even traders couldn’t agree on who will become the nominees. It all came down to who could call the race — Americans or those watching from overseas.
As Arab News went to press, foreign traders on the political prediction markets were betting on victories in Iowa by Illinois Sen. Barack Obama and former Arkansas Gov. Mike Huckabee.
Obama, seeking to become the first black US president, was seen by the traders as the likely Democratic winner, with a 46.2 percent chance, compared with a 32.9 percent chance for former first lady Hillary Clinton, midday trading on the Intrade futures exchange showed. Former North Carolina Sen. John Edwards trailed at 21 percent.
Traders on the Dublin-based Intrade prediction market buy and sell contracts based on which party they expect to win the US elections and which candidates they expect to win or lose the various state nominating contests.
But not so fast, according to the Iowa Electronic Markets (IEM) at the University of Iowa, if Barack Obama lands a No. 1 finish in the Iowa caucuses, it will be a stunning political upset.
The IEM 2008 US Presidential Election Markets are “real-money futures markets where contract payoffs will be determined by the popular vote cast in the 2008 US presidential election,” the school explains, where IEM is a futures trading market set up as an ongoing experiment by the University of Iowa’s Tippie College of Business.
In 1996, 2000, and 2004, it called close presidential races correctly and has often been cited as one of the first functioning examples of “the wisdom of crowds.”
The IEM said the odds were almost 3-1 that the Democratic nominee would be Hillary. On the eve of the caucuses, the IEM valued Hillary’s stock at 63.3 cents, Obama at 24.4 cents and John Edwards at 12 cents.
An even greater upset would be Iowans’ selection of Mike Huckabee as the candidate.
Huckabee, a former Baptist preacher who appealed to Iowa’s social conservatives, led the Republicans with 70 percent, compared with former Massachusetts Gov. Mitt Romney at 35.1 percent, the Irish-based Intrade trading showed.
Contracts are structured so that prices can be read as the percentage likelihood of the candidate winning the race. So Intrade says traders buying and selling Huckabee contracts at 70 believe he has a 70 percent chance of winning.
But researchers involved in the Iowa Electronic Markets, a non-profit real-money exchange run by professors at the University of Iowa, have found that political markets often forecast election results better than polls. The Iowa market only offers contracts on which party is likely to win the US general election and which candidates are likely to win the Republican and Democratic nominations.
Traders on both exchanges were forecasting a Democratic victory in the general election in November. They just couldn’t agree on the winner.
On the Iowa exchange, traders were betting Hillary had the best chance — 61.5 percent — of winning the Democratic nomination. Obama trailed at 25.8 percent and Edwards followed at 12.4 percent, trading showed.
Romney was predicted to have a 31 percent chance of winning the Republican nomination, followed by Arizona Sen. John McCain at 26.3 percent and former New York Mayor Rudy Giuliani at 21 percent, trading showed. Huckabee was seen as a long shot at 12.8 percent.
The IEM has correctly predicted the outcome of the last three presidential elections. It predicted Al Gore would narrowly beat George W. Bush in the popular vote in 2000 and that Bush would beat John Kerry in 2004.
But the market’s predictions are far better closer to elections than far out. Of course, the candidates may be chosen as soon as February 5, when some 15 states will cast their primary ballots in what is called Super Tuesday.
