Iowa Electronic Markets

If you haven’t seen it yet, check out the University of Iowa Tippie School of Business’ Iowa Electronic Markets at http://www.biz.uiowa.edu/iem/ . It is a fascinating experiment that shows how economics and markets can illuminate political trends. The concept is pretty simple: allow “traders” to buy and sell contracts that pay out based on the outcome of a particular event. So, if the contract is “Hillary Clinton to win the Democratic Presidential nomination,” then it will pay out if and when she is nominated. To some, this may sound a lot like betting on sports , but there are several important distinctions.

First, it is all perfectly legal. The Iowa Electronic Markets operate under a “no-action” letter from the Commodities Futures Trading Commission, which means that as long as it meets the guidelines outlined in the letter, the IEM can continue to operate and the CFTC will not intervene. Second, the value of each contract is just one dollar and there are limits on the amount of contracts that can be purchased. So, it’s pretty hard to lose the kid’s college funds in the IEM. Third, the IEM is a marketplace where intangible things like ideas, principles, and personal qualities are given quantitative values. Participants are given the opportunity to synthesize all of these things into a single quantitative expression: the price of the contract.

This is pretty cool stuff. Sure, politics itself is a great marketplace where voters consider carefully throughout an election season how to allocate a very scarce and precious resource: their one vote. In the IEM, however, participants can assign values to all sorts of political questions, weighing in on them and contributing their personal insight to an efficient political markeplace.

I do have one complaint with the IEM. Where is the Mike Huckabee presidential nomination contract? They way to express confidence in the Huckabee candidacy is to purchase the “all other”contract. The RealClearPolitics website has Huck in 3^rd place (13.8%) in Iowa and rising. Isn’t it time for this to be reflected in the IEM? Write them and ask for a Huck nomination contract to be established. Contact at: iem@uiowa.edu