The Iowa Electronic Markets What is the IEM? Electronic futures market under CFTC regulatory purview Trading occurs over the Web Traders buy and sell contracts tied to political and economic events: political outcomes economic events earnings or returns outcomes What is the IEM?
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Payoff: $1 x Republican nominee’s share of 2-party vote
Price: Predicts Republican nominee’s vote share
Payoff: $1 x Democratic nominee’s share of 2-party vote
Price: Predicts Democratic nominee’s vote shareExample: 2004 Presidential Vote Share Market
Payoff: $1 if Republican wins in 2008
Price: Predicts Republican’s chances of winning
Payoff: $1 if Democrat wins in 2008
Price: Predicts Democrat’s chances of winningExample: 2008 Presidential Winner-Takes-All Market
1988 $ 4,967
1992 $ 83,226
1994 $ 42,000
Dem versus Rep Aggregate Probabilities