Monday, July 05, 2004

Iowa Leads the Market

Iowa made John Kerry when he unexpectedly won the caucuses for the nomination there in January. Now is Iowa trying to tell us something equally suprising?

I've been hearing a lot of bad news for George Bush recently, with Iraq turning ugly and then weaker growth in the economy apparent in last Friday's weaker than expected non-farm payrolls.

A New Yorker financial reporter has just published a book, The Wisdom of Crowds to popularise the idea that groups of people often outsmart individuals, roughly what economist types mean when they say that a financial market is efficient, so don't waste money buying anything other than an index-tracker.

I've written on open and market-based systems before, but I was gobsmacked when I saw the prices quoted above on the Iowa Electronic Marketplace: Bush is priced to win with about 55% probability and Kerry 45%. The insider types - journalists, academics and political staffers - putting their supposedly-smart money on the line at the IEM seem to have decided that we face a repeat of 1984, not 2000.

Who's right - the polls or the market? I don't know. It would be interesting to look at this years Democratic nominations as a case-study of the supposed powers of prediction markets, as I suspect that the IEM was as blindsided by Kerry's surge as the media and other supposed experts were.