Letters

Readers explain what's wrong with Farhad Manjoo's "The Iowa Electronic Markets Are Still Going for Bush."


Salon Staff
October 1, 2004 11:30PM (UTC)

[Read the story.]

If you want to win or lose some money on this race, go ahead. But as a predictive mechanism, betting pools are terrible. If they were so damn real, then how come all the Vegas casinos are making money?

-- Jim Hassinger

How can you say that the IEM is "a forecast that, in the past, has proven quite accurate" without at least mentioning that it got the last election wrong? In the last two weeks of the election the market went strongly in favor of Bush winning the popular election. Everyone making that bet lost their money as Gore got more popular votes.

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To me the real bubble here is in the credibility given to the meme of the wisdom of smart markets. What was a clever hypothesis for a book has passed into accepted fact.

I for one am looking forward to large Kerry win and the ensuing hand-wringing about how we could have fallen for such a simplistic idea that markets have some special ability to predict the future.

-- Randy Belknap

It is interesting to me that Salon spends so much (virtual) ink on the Iowa Electronic Market, when a previous Salon article discredits the Market and its results in the last presidential election.

-- Eric Thomas Black

It wouldn't be terribly difficult to manipulate the share prices of the IEM, even with the $500 limit. Rove could just ask hundreds of his buddies to "invest" and do a "pump and dump" scheme to convince those who look at the IEM as a gauge of who will win the election to think that Bush will actually win. Especially if you are planning on manipulating the election results. Then you can say, see, the polls called it (not!) and so did the IEM.

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Everything is being manipulated now. All I can say is that from my own direct experience -- of all the people I know, very few are voting for Bush. Overwhelmingly not voting for him. Complete strangers also say the same. Overwhelmingly. There's my poll. I'm betting on Kerry.

-- Marta Gillette

"If Democrats really believe that John Kerry's chances are better than the IEM says, why don't they sign up to the market and start bidding up Kerry shares?"

Ummm ... maybe we have better things to do with our life?

-- Zafar Sobhan

Manjoo misses the most obvious explanation of the IEM's large valuation of a Bush win: a group of Bush supporters have bid up the Bush contracts to create positive press for Bush. Probably a lot cheaper than buying ads, the money invested wouldn't count as a campaign contribution, and if Bush wins, the money is returned in full plus a profit.

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-- Jerry Crouch

There could be another reason for the overpriced Bush shares -- hedging. If a trader believes that a Bush presidency will result in economic policies detrimental to his/her own economic interests, it would make sense to buy Bush shares. If they buy enough shares and Bush wins, hopefully they will make enough profit from their shares to counteract their increased losses or risk of loss under a second Bush term. And if Bush loses, losses from their worthless shares would be balanced by the more favorable Kerry economic environment.

It wouldn't even have to be an increased risk of losing one's job that the person is counteracting -- it could be that they expect much psychological angst from a Bush win, and want to have the money to cover their increased therapy bills.

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The extent to which someone could hedge their perceived risks of Bush winning (or the risk of Kerry winning, if one fears that outcome), is less limited on other sites, like Intrade.com and arbitrageurs ensure that the prices among the various sites stay quite similar. Arbitrage would easily extend to the whopping $.51 paid for shares representing landslide Bush wins, as well.

Because of the anonymous trading it is impossible to determine whether this is responsible for the seemingly overpriced Bush shares, but it is a strategy available to anyone desirous to limit the harm experienced from a particular outcome. And prices can be correctly absurd, since optimal financial strategy includes the minimization of risk; accurate predictions sometimes take a backseat to protecting yourself.

-- Ben Seeley

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Salon Staff

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