I know which I'd put my money on

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Which is the better predictor of election outcomes: polls or futures markets? The NYT has an quick look at the current discrepancy between the two regarding the possibility of a second Bush term.

Should anyone give credence to such exchanges? "Our contracts have a much higher predictive value than any public opinion poll because people have to put their money where their mouth is," said Michael Knesevitch, director of communications and business strategy at Intrade, which was founded in 2001. "We predicted all the primaries. We also had Edwards as being the vice presidential nominee back in May."

The Iowa market, housed at the University of Iowa, has been around since 1988 and makes somewhat less exuberant claims. A comparison of 596 opinion polls with Iowa's presidential futures prices at the time the polls were conducted shows that the futures prices were closer to the actual result 76 percent of the time, according to Thomas A. Rietz, an associate professor of finance at the University of Iowa and a director of the market. As of Friday, Iowa traders thought that Mr. Bush had a 52 percent probability of winning.

Actually, I have reservations about both methods of predicting elections. Markets are just second worst of the two.

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Its even worse than you think:

Take a slightly more detailed glimpse at the Iowa Prediction market as an example: The total dollar amount invested in this market (according to one of the Profs at Iowa I spoke with) is at present a grand total of $15,800.

Fifteen thousand, eight hundred dollars being played with primarily by a group of under-graduate and graduate students at Iowa University. From this �prediction market,� people are predicting the outcome of the $7 trillion capital markets in the United States.


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