Shostack + Friends Blog Archive


So Cynical, I Wish I'd Thought of It.

My friend Craig Sauer wrote:

In the spirit of the equal time, here’s what’s keeping me from being
optimistic about Kerry’s chances: The Iowa Electronic Markets.

You’ll have to read on the site to get the real skinny, but basically, the
IEM is a real-money futures market where people make informed “bets” about
who is going to win. It’s predictive power is very different from polls,
because it asks its participants who is more likely to win rather than who
the participants favor. For example, if the futures market was based on
which presidential candidate will win California’s electoral votes, even
Bush supporters would pay lots more for Kerry shares than Bush shares. The
market relies on its participants having collective knowledge that predicts
the outcome.

One would think, based on the recent trends in polls, and how nice things
are looking at, that Bush shares would be dropping and
Kerry shares on the rise. But this is not the case.

So what do the IEM traders know that the polls aren’t showing? Probably
that the smart money assumes that Bush has Florida and Ohio fixed. The
polls are showing how the voters will vote. They aren’t showing how the
vote count will turn out.