Thursday, Jul 24, 2008
Salon's reporter puts his own money on the line, betting that an Iowa futures market holds the key to the White House.
Jun 29, 2004 | Last week wasn't the best for George W. Bush. At home, "Fahrenheit 9/11," Michael Moore's anti-Bush polemic, broke box office records. In Iraq, blood spilled anew -- bombings, beheadings and brutality dominated the headlines. Then there was the foul-mouthed vice president, the bestselling former president, and a couple of dispiriting polls. In other words, taken together, these seem like good times for John Kerry.
Yet last week on the Iowa Electronic Markets, I dumped my shares of John Kerry futures -- and I was proud to do it, too. The IEM is a real-money Web-based trading system run by the University of Iowa's business school. Among some political scientists and economists it is thought to be extremely good at predicting the results of presidential elections. This should cause heartache to Democrats, because ever since June 1, when the IEM's most popular presidential market opened for trading on the 2004 race, shares of John Kerry futures have been badly trailing those of Bush.
I like John Kerry. I appreciate his position on ... well, I like him anyway. There's almost no way I won't vote for him. But in the month that I've been playing the Iowa Electronic Markets, Kerry has not been kind to me; each time I've purchased a batch of Kerry shares, I've been burned by new lows. So when, in the middle of last week, I saw Kerry's stock price begin a nice climb from the depths to which it had fallen after the death of Ronald Reagan, I knew what to do -- sell! On Wednesday, Kerry's shares reached a near-record high of 49 cents. I put in my sell order, and by Thursday I'd sold five John Kerrys at 47 cents each. Other traders seemed to do the same; by Thursday Kerry had plummeted and Bush was heading up.
As a supporter of John Kerry, do I feel a little bit guilty about betting against him? Not really. On the IEM, you quickly learn not to let your personal politics cloud your trading strategy. Here, all that matters is what you think others will do in November -- and, like most of the other money on the IEM, my dollars are lined up in support of George W. Bush.
I was pulled into the IEM in part by the New Yorker columnist James Surowiecki, who writes lovingly about the market in his book "The Wisdom of Crowds." On the IEM, anonymous traders buy and sell contracts that offer payouts based on the outcomes of real-life events -- most famously, presidential elections. Here, in pretty much the same way that traders on the Chicago Mercantile Exchange buy and sell contracts for pork bellies, you can exchange shares of Kerry and Bush according to your guesses about how each will do in November.
Surowiecki's thesis is that large, independent groups of people possess a special wisdom about the future, and that markets like the IEM are a particularly good way to distill that wisdom. Under the right circumstances, he says, a crowd's guess for what will happen in tomorrow's election is a much better predictive tool than a survey that asks them how they will vote if the election were held today. Surowiecki's not lying: The IEM is good. Last year, for instance, traders determined about three weeks before the vote was held that Arnold Schwarzenegger would win the California recall election; by about two weeks in advance of the vote, they'd even begun homing in on Schwarzenegger's eventual vote share. In the 2000 presidential election, the IEM was predicting that Bush would win by the middle of October. In 1992 it performed even better, predicting Bill Clinton's win by August.
Get Salon in your mailbox!