Are Election Markets More Accurate than Polls

1
Are Election Markets More Accurate than Polls?
2
Do Polls Do It Better?
3
An Alternative Iowa Electronic Market 2008 U.S.
Presidential Election Markets

• The IEM 2008 U.S. Presidential Election Markets
  is a real-money futures market where contract
  payoffs will be determined by the popular vote
  cast in the 2008 U.S. Presidential Election.

4
Problems with Polls

• Sampling
• It costs a lot to get a random sample that
  represents the opinions of the target group.
• Sample Size
• How many interviews need to be conducted? Is
  1,000 enough?

Telephone Surveys Busy? Unlisted numbers? Who
picks up? Cell phones?
5
Problems with Polls

• Questions
• Bias?
• Lying
• Are they telling the truth?
• Turn Out
• Polls might be correct but the turnout can be
  unexpected.

6
Are Markets Better?Iowa Electronic Markets (IEM)

• Started in 1988 by three economics professors
• Small futures market.
• Buy contracts reflecting their predictions.
• People can speculate.
• Winner-take-all market.

7
How It Works

• On Thursday, June 1, 2006, at 100pm CDT, the
  Iowa Electronic Market (IEM) opened trading in
  vote-share contracts based on the 2008
  Presidential Election.
• Payoffs in the 2008 Presidential Vote-Share
  Market will be determined by the percentages of
  the popular vote received by the official
  Democratic and Republican nominees in the 2008
  U.S. Presidential Election.

8
How It Works

• DEM08_WTA
• 1 if the Democratic Party nominee receives the
  majority of popular votes cast for the two major
  parties in the 2008 U.S. Presidential election,
  0 otherwise
• REP08_WTA
• 1 if the Republican Party nominee receives the
  majority of popular votes cast for the two major
  parties in the 2008 U.S. Presidential election,
  0 otherwise
• On the first trading day in January, 2007, the
  DEM08_WTA contract sold for 52.2 cents.

9
Choices

• 1. You can buy a number of DEM08_WTA shares and
  wait for the results of the election.
• If the Democratic Party nominee receives the
  majority of popular votes in the 2008
  Presidential Election, the speculator would have
  his contract liquidated and receive 1, for a
  profit of 48.
• If the Democratic Party nominee did not receive
  the majority of popular votes in the Presidential
  Election, then the speculator would receive
  nothing.

10
Choices

• 2. You can buy shares intending to sell them
  later (before the election and the resolution of
  the share values) for a greater amount.
• 3. Another option would be to short sell
  DEM08_WTA shares - if one considers the price of
  DEM08_WTA to be too high and incommensurate with
  the true probability of the popular vote going to
  the Democratic nominee.

11
Pre-Election Poll Estimates 2004
12
Primary Season
13
(No Transcript)
14
Back to School

• 1. According to the our school handbook, skipping
  school to bungee jump can get you
• suspended.
• 2. Our school once employed a cross-eyed teacher.
  We had to let her go because she just couldnt
• control her pupils.
• 3. Last year the electricity went off during
  thunder storm. The students were
• de-lighted.

15
Back to School

• 4. Last year we had a student named Jason. It
  wasnt our school he disliked, it was just
• the principal of the thing.
• 5. After our summer recruiting campaign, even
  fish wanted to enroll at our school. They wanted
  to
• take debate.

16
Back to School

• 6. We'll never run out of good math teachers at
  our school because
• they sure know how to multiply.
• 7. Last year we had an arrogant math teacher but
  she finally ate a slice of
• humble pi.
• 8. I heard that the answers to our eight grade
  geology test were written
• in stone.

17
Back to School

• 9. Old school principals never die, they just
  lose
• their faculties.
• 10. Our English teacher felt odd on the last day
  of school last year.
• It was post-grammatic stress disorder.

18
The Obama/McCain Guide to Political Reasoning
19
Guide to Economic Reasoning

• People choose.
• Peoples choices involve costs.
• People respond to incentives in predictable ways.
• People create economic systems that influence
  individual choices and incentives.
• People gain when they trade voluntarily.
• People's decisions have consequences that lie in
  the future.

20
Guide to Political Reasoning

• Laws are like sausages. It is better not to see
  them being made.
  Otto Van Bismarck
• Get your facts first, then you can distort them
  as you please.
  Mark Twain
• A government which robs Peter to pay Paul can
  always count on the support of Paul.
  George Bernard Shaw

21
Guide to Political Reasoning

• In America anyone can become President. Thats
  one of the risks you take. Adlai Stevenson
• An honest politician is one who when he is bought
  will stay bought. Simon Cameron
• I have come to the conclusion that one useless
  man is called a disgrace, two men are called a
  law firm, and three or more become a Congress.
  John Adams

22
Guide to Political Reasoning

• Liberals feel unworthy of their possessions.
  Conservatives feel they deserve everything
  theyve stolen. Mort Sahl
• The reputation of Congress is lower than quail
  crap. Alan Simpson
• When buying and selling is controlled by
  legislation, the first things bought and sold are
  the legislators. PJ ORourke
• A billion here and a billion there, and pretty
  soon youre talking about real money. Ev Dirksen
  

23
Guide to Political Reasoning

• Take any 3 letters in the alphabet, put them in
  any order, and you have the acronym for a federal
  agency.
  Milton Friedman
• Suppose you were an idiot and suppose you were a
  member of Congress. But I repeat myself.
  Mark Twain
• When I die, I want to be buried in Chicago. I
  want to stay active in politics.
  Mo
  Udall