E-mail updates
Follow on Twitter
Subscribe to RSS
IEM
A chart shows share prices on the Iowa Electronic Markets for the projected outcome of the 2010 congressional elections. The blue line is the trend for Democratic control of House and Senate. Green stands for GOP control of House, and Democratic control of Senate. Red represents a Republican sweep, and the black line shows the prospects for a Democratic-led House and a GOP-led Senate.
Political prediction markets suggest that the outcome of next week's congressional elections is settled, with Republicans taking control of the House and Democrats slightly favored to hold onto a majority of sorts in the Senate. That forecast follows the current conventional wisdom. The interesting part is how the markets arrive at that conclusion: Rather than relying on polls of registered or likely voters, the markets render their judgment based on real-money bets from hundreds of traders.
It's the closest thing to political gambling, and it's perfectly legal.
For more than 20 years, the Iowa Electronic Markets have let Internet users buy and sell "shares" in political propositions -- for example, RH_NRS10 in the chart above stands for the proposition that Republicans will control the House and non-Republicans (Democrats and independents) will hang onto a Senate majority. You could buy into that proposition today at around 73 cents a share. If that's the way the election turns out, you receive $1 per share. If the outcome is different, you get zip. Nada. Nothing.
The IEM has special dispensation from the Securities and Exchange Commission to run this kind of operation because it's regarded as a University of Iowa research project with the purpose of studying how real-money behavior plays out in non-traditional markets. Similar set-ups have been put into force or at least proposed for box-office prediction, flu forecasting and even terror threats. (That last idea didn't get very far.)
In the political sphere, the IEM has done at least as well as the more traditional opinion surveys at predicting election outcomes. The reason has to do not only with the oft-cited "wisdom of crowds," but also with the fact that the potential payoff entices knowledgeable traders to swoop in on what they perceive as a good deal. That produces a market that quickly reflects the latest line on how the contest will turn out. Like the Vegas line on next weekend's big game, the result is authoritative but not foolproof.
Today, the average share prices on the IEM are 72.6 cents for a Republican House and a Democratic Senate; 15.3 cents for a GOP sweep; 12 cents for a Democratic sweep; and 0.2 cents for a Democratic House and Republican Senate. Just in the past couple of days, there's been a significant uptick in the Democratic-sweep share price, perhaps due to reports about Dem-friendly trends in early voting. Someone who bought the NRH_NRS10 stock at 8.3 cents a share could have made a 44 percent profit in just a couple of days, even if the Democrats tank next week. Now that's the free market in action!
If you're looking for the markets to send an overall message that's different from what pundits are seeing in the polls, that's not likely to happen. The traditional view is echoed not only by the IEM, but also by Intrade, an Irish-based online trading site that deals in political propositions as well as other prediction markets. Intrade's clients are basically putting 90 cents on a proposition that pays off $1 if the Republicans win the House, and 57 cents for a $1 payoff if the Democrats hang onto the Senate.
The judgment from the political market may be going against the Democrats, but President Barack Obama can still take heart from the early line for 2012. Intrade's traders lean toward the view that a Democrat will win the presidential election two years from now (61 cents vs. 39 cents for a GOP candidate). Will that view change after next Tuesday's election? Watch the final week of the campaign unfold in msnbc.com's Decision 2010 section, and tune in next week for your market update.
Visit the Cosmic Log page on Facebook and hit the "Like" button. You can also follow @boyle on Twitter. And if you really want to be friendly, ask me about "The Case for Pluto."
Leave a Comment:
It's well known that democracy & technology shape the future of a nation.
Let's give Democrats a chance to make headway.
The former President Bill Clinton said "It took me four years to balance the budget, then I gave you four surpluses, paid $600 billion down on the national debt,"
And I'd say : It took 8 years for the Bush mishandling to get a final verdict.
Let's not fall for the outrageous claim : Heal the 8 year-long chronic disease quickly, but do not see a doctor, adding to the deficit.
I do believe strongly that the nope or tea party, the insane group, are set to wreck a havoc on America.
The polls leave out lots of cell=phone users. Not too late for Democrats ...
This isn't a traditional poll, of course ... instead, traders "invest" real money based on their assessment of how the trend is likely to turn out. But that assessment may in turn be based on reports about polls. It's very much like betting on the outcome, except that you can modify your bet as the big game nears, by shifting your "investment/bet." If I decide that the Democrats will hold onto a House majority after all, I can sell my shares in a Republican wave and buy Democratic stock instead ... keeping in mind that in the end it all comes down to the only poll that counts. On Election Day. Thanks to Washington state's vote-by-mail system, I've voted already. Have you? Will you?
Great! It is just like the Republicans were hoping. No one remembers who actually DUG the hole we are in. Does anyone remember what the economy was like at the beginning of the fantastic Bush presidency? What about the end? Yes, that is just what we need! More incompetent Republican blundering to get us out of this.
The Tea Partiers should be properly called the "We Are ANGRY Just Because We Lost To A Black Man" Party instead, that would be the reality of it considering that they were in full force only one month after President Obama took office, and MAD about all of the things that his predecessor had done, not about anything that he had done other than win the election!
The only sure bet is the United States, as we have known it, is in DEEP TROUBLE.
Our Government is broken, Our leaders have NO INTEGRITY.
We are drowning in OUR OWN DEBT.
UNIONS, GLOBAL CORPORATIONS, and punitive regulations are decimating our economy.
We are one of the HIGHEST TAXED PEOPLE in the world... And Government is considering DOUBLING the taxes we currently pay.
Congress continues to WASTE the taxes they collect.
And LAST BUT NOT LEAST, the MEDIA, historically the protector of the great American experiment, is now owned by LARGE GLOBAL CORPORATIONS like General Electric.... and are now CREATING NEWS... RATHER THAN REPORTING IT, and feeding us propaganda, rather than helping to educate our children.
In the name of humanity, give us a LITTLE time away from the stench of politics.
This is a very easy "poll" to manipulate if you just have the cash to sway the results. It can't really be used as a poll at all since there are no controls for samples or to limit bias.
In a perfect world, this could have some validity, but this mid-term has already seen more money thrown at it than the 2008 election, so a right leaning non-profit throwing $5-10K into this to convince people of a trend is not inconceivable at all.
I agree with Mike. First there is a profit motive involved. The investors or betters if you prefer, look at the tout sheets. In this case it's the daily news reports on MSNBC and other news outlets that keep saying Democrat control of the House is gone. The Senate may/may not be in play, depending on the wind direction and strength that day.
The proof of this theory can be found in the "long shot" betters (investors) who have been encouraged by some reports of late game surges by the Democrats.
This poll/stock market/betting parlor model is only accurate if the poll data the investors/betters are using is valid.
It's not unlike the "Toilet Poll" which measures the number for toilets being flushed during the event being measured. It's fun, but meaningless other than a reflection of what the news media is reporting/predicting.
Watch your facts, though. Dems outspending Republicans by 25% this cycle.
The UNDISCLOSED Corporations (Like through CoC) are spending between 5 to 1 and 9 to 1 for Repubs vs Dems, so while the actual PARTY spending is one way (the Repub party is over $2 Million in the RED), the actual spending via outside sources is vastly more for the Repubs.
Unless something truly "cosmic" happens, it is a given that Republicans will win this election. Let's get a little balance on some of the commentary above, however:
1) There is no sin the Democrats have committed that the Republicans have not committed, and vise versa. The nation will continually flop back and forth between the parties until someone actually runs this nation responsibly.
2) The Tea Party has been vilified unfairly. If you don't like small government and lower taxes, feel free to call them politically ignorant. However, calling them racist simply because our current president is a minority is completely unfair. They would be just as upset at the rate of spending and government growth if Hillary or Edwards or anyone else who ran were in office doing the same thing.
3) The Republicans spent like crazy when they were in power and it was bad. No argument there. However, President Obama is outdoing them on this front like an NBA basketball team at the Olympics.
4) The housing crisis finds its cause to be completely bi-partisan. Yes, it came to a head under Bush's presidency. But it was caused by multiple factors: 1) Regulations which should have been in place but were not because Republicans push for deregulation. 2) Regulations that were in place due to the Community Reinvestment Act, which was created, then expanded, and always protected by Democrats. 3) Fanny and Freddie, which many Republicans tried to reign in in 2006. Who do you think blocked that effort? I'll give you one hint: a political party that starts with a "D".
5) Clinton was the only effective Democrat president in my lifetime. He BECAME effective when Republicans came into congressional power. Forced to work together, reasonable things were accomplished. Our only hope is two parties blocking 90% of each other's legislation. That way most of the crap simply doesn't make it to law. 100% gridlock would be better than ANYTHING that has happened in recent political history.
Now to this form of "polling"- I find it very interesting that this is effective, but people aren't generally clairvoyant. These are informed people looking at a broad spectrum of polls and making un-emotional judgements on how to proceed. Of course they'll be particularly accurate. But I don't find much mystery in it.
There is a problem with conventional polling and this may be the election to point it out. So many people do not have a land line and are therefore not on traditional demographically sorted calling lists used by pollsters.
Second, and perhaps most important, the majority of these "Cell-only" folks are younger people who are currently skewing "democrat" if we can believe the experts.
Finally, Hispanic voters are going to decide several of these races in Arizona and California and they are largely ignored by pollsters and even if contacted are not likely to participate.
So there are a lot of unknowns out there this time around.
I'm not saying the polls and predictions are wrong, I'm just saying there is a larger margin for error and that margin is only going to grow as the Hispanic population grows and more and more people go "wireless" for their communications.
Skip, you make some good points, though there is one caveat- the young democrat-trenders are generally uninformed and un-involved in politics. Obama created a "rock star" presence that drew them out, but he seems to not be doing so very effectively for the mid-terms. So I don't think these young voters are going to make much of a difference this election. Therefore, eliminating the cell only users might trend a poll more conservative, but an energizing force is necessary to motivate those youngsters. In effect, it is eliminating unlikely voters.
Search,
You could very well be right. The odd thing about this election is we just won't know until the post-election analysis is complete. It will be very interesting to see if traditional pollin is still accurate.
I can tell you here in Oklahoma in our hotly contested Democrat Governor's primary all the polls said one candidate (Attorney General Drew Edmondson) was way ahead of the other candidate (Lt. Governor Jari Askins) but Askins won by a squeak. Some local observers (and me) believe it was the Latino vote that put her ahead.
But we'll see what it all looks like a week from today.
Take care and thanks for the civil discussion.