Iowa Electronics Market hopes to repeat election prediction success



In 2008, the Iowa Electronics Markets contended Sen. Barack Obama would win 50.56 percent of popular vote and was only .53 percentage points off the mark.

This year, they hope to emulate that accuracy.

The Iowa Electronics Markets have been for some time now, used to predict results of political processes such as presidential elections, congressional elections, and party nominees within a margin of error of around 1 percentage point.

In the 2008 presidential election, the market came closer to predicting each candidate’s percentage of popular vote than Fox, NBC, ABC, CBS, Zogby, and Gallup Polls.

UI Finance Professor Thomas Rietz, who is also a member of the Steering Committee, attributes the Electronic markets’ accuracy to the principles behind it.

“You’re trying to make a prediction about what everyone else in the country will do,” he said. “No personal bias or beliefs involved.”

Reitz said anyone in the world can invest between $5 to $500 dollars in IEM.

“It’s basically a stock market for political results,” he said.

Currently, the market has former Secretary of State Hillary Clinton and businessman Donald Trump earning their party’s nominations, and the winner-take-all market predicts a Democrat winning the presidential election.

The group was created by several UI faculty members following a major upset in the 1988 presidential-nomination race, in which every pollster in the country had failed to predict the results of the Michigan’s primaries, Rietz said.

Several professors, including Professor Emeritus Forrest Nelson of the UI Tippie School of Business, had met in a bar to discuss the 1988 results.

“We wanted to improve forecasting because we saw that polls didn’t work well,” Nelson said. “A lot of classes around the country look at these numbers. And anyone can invest.”

The program was developed in Iowa but soon expanded and eventually became a global phenomenon, Nelson said.

“They [the professors] wanted to take all this information about people and put it into a single number — and that’s what stock markets do. So they thought, why don’t we create a political stock market?” said Thomas Gruca, a UI professor of marketing and a member of the Steering Committee.

Poll inaccuracies are still apparent. Recently, presidential candidate Hillary Clinton had been predicted to win the Michigan primary in most national polls. Instead Vermont Sen. Bernie Sanders triumphed with 50 percent of the popular vote compared with Clinton’s 48 percent.

“Polls rely on calling people and asking them whom they will vote for,” Gruca said. “However, a majority of young people will not answer their phone if they do not recognize the number calling them. Therefore, candidates such as Sanders, who excite a younger demographic of voters, are routinely underestimated in major polls.”

Additionally, Rietz said, poll inaccuracies also cause people to express beliefs that are not binding.

“In the IEM, what you’re doing is putting money on the line and trying to make a prediction about what everyone in the country will do,” he said. “No personal beliefs or biases involved.”

There are two different types of markets in the system, Rietz said.

“The first kind is the winner-takes-all,” he said. “If the event you predicted happens, you get paid a dollar. The most popular winner take all market is the nomination market.”

The other kind of market is the vote-share market, he said.

“If you hold a Democratic contract, it’s the vote-share taken by the Democratic nominee times $1,” Rietz said. “You’re trying to forecast the percentage of the vote taken by the Democratic candidate versus the Republican.”

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