June 14, 2010
Iowa Electronic Markets opens prediction market for Florida Senate seat
The University of Iowa’s Iowa Electronic Markets has opened a real-money prediction market to track the race for the U.S. Senate seat from Florida.
Traders can buy and sell contracts based on which of three candidates they think will win this November’s general election: the Republican nominee, likely Marco Rubio; the Democratic nominee, likely Kendrick Meek; or independent candidate Gov. Charlie Crist.
The race has generated immense national attention because of Crist’s departure from the Republican primary after challenger Rubio, who is supported by the Tea Party movement, took leads in most polls for the Republican primary election.
“In order for any market to be successful, investors need information they can aggregate to help them make a decision on what contracts to buy,” said Joyce Berg, IEM director and an accounting professor in the University of Iowa’s Tippie College of Business. “With the media attention given to this race, traders should have no shortage of information to aggregate.”
Two markets will be open on the Florida Senate market: a Winner Take All market, where traders can buy and sell contracts based on which candidate they think will receive the most votes in the election; and a Vote Share market, in which traders can buy and sell contracts based on the percentage of the overall vote they think a candidate will receive.
Current contract prices in the Winner Take All market can be found online at http://iemweb.biz.uiowa.edu/quotes/348.html. Current prices in the Vote Share market can be found at http://iemweb.biz.uiowa.edu/quotes/347.html.
The market’s general information page can be found online at http://www.biz.uiowa.edu/iem/markets/florida10.html.
The IEM is operated by the Tippie College of Business and is a real-money futures market open to the public in which traders can invest up to $500 to buy and sell contracts based on which candidate they think will win. The IEM operates as any other futures market, only instead of purchasing contracts on corn or oil or hogs, traders purchase contracts on the likelihood of a candidate winning an election.
All contracts on the IEM are traded for between zero cents and $1, with contracts for the winning candidate paying off at $1 and all other contracts valued at zero.
The price of a contract in cents equals the probability of that candidate winning the election. For instance, if Candidate A’s contract is trading at 32 cents, the market believes there is a 32 percent probability that Candidate A will win. If Candidate A wins the election, those contracts purchased at 32 cents will be pay off at $1, a 68 cent profit for each contract.
The IEM has operated markets in every presidential election since 1988 and a recent study showed it to be more successful at predicting winners than 74 percent of the public opinion polls conducted during that time.
More information about the IEM and how to open an account can be found online at http://www.biz.uiowa.edu/iem/index.cfm.
This year, the IEM has also opened Congressional Control, Senate Control and House of Representatives Control markets. Current prices on those markets can be found at http://iemweb.biz.uiowa.edu/quotes/Congress10_quotes.html.
STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500