My Two Cents

Iowa prediction market

Chris Farrell Nov 21, 2008

Here’s part of nthe press release from the Iowa electronic prediction market:

Democratic Contract Never Trailed on IEM’s Winner Take All Prediction Market
Traders on the University of Iowa’s Iowa Electronic Markets (IEM) predicted from the start that the Democratic nominee for president would be the likely winner of the 2008 popular vote.

Their foresight proved accurate Tuesday, as Barack Obama was elected president and the Democratic contract on the IEM’s Winner Take All market paid $1.

Since the Winner Take All market opened in June 2006, the Democratic contract never once dropped in value below the Republican contract.

As of midnight Central Time Monday, 439,431 contracts had been traded on the Winner Take All market since the market opened, for a total value of $204,536. The normalized prices at midnight the day before the election, which are used to determine the market’s predictive capability, indicated a 90 percent probability that the Democratic candidate would win the popular vote.

On the IEM’s Vote Share market, traders predicted the final two-party vote split at midnight Monday to be 53.5 for Obama and 46.5 for McCain. The contract pay-off on the Vote Share market won’t be known until the final vote percentage is determined later, after all votes have been tabulated. Volume on the Vote Share market as of midnight Monday was 16,556, for a total value of $8,342.

Traders also believed there was an overwhelming likelihood that Democrats would expand their control of Congress. As of midnight Monday, the probability of Democrats maintaining control of both the House of Representatives and the Senate was 93.9 percent. The likelihood of gaining seats in the House was at 97.9 percent and the probability of gains in the Senate was at 98.1 percent.

The Democratic contract paid off $1 on all three congressional markets. The volume traded on the Congressional Control markets that opened in August was a combined 38,815 shares, for a value of $14,525.

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