Best GOP predictor? Try the commodity market
January 9th, 2012
01:53 PM ET
11 years ago

Best GOP predictor? Try the commodity market

Iowa City, Iowa (CNN) - As polls and pundits try to handicap the Republican nomination race, the smart money may be on a little-known commodity market which has proven to be a leading indicator of trends in campaigns.

"Traders have incentive not to tell us what they want to happen... but what they think will happen," said Joyce Berg, who directs the Iowa Electronic Markets, or IEM, at the University of Iowa.

To listen to our podcast on the campaign, including what market trends sound like for different candidates, click here. Or keep reading for more.

The Iowa Electronic Markets are run as an academic exercise by the University of Iowa's Tippie College of Business, but they are actual markets where investors use real money, up to $500, to bet on who they think will perform in elections.

Each market watches a specific political event. Thus, there is a market for the final Republican nomination, a market for control of the Senate, one for the ratio of control in the House and a market for the final presidential vote in November.

You can call them futures contracts on politicians or a way to bet on campaigns. Either way, the IEM have been notably accurate.

"On average, our markets the night before an election are within 1.2 percent of the outcome," Berg told CNN Radio. "But they are more accurate relatively, the farther you get from the election."

In other words, the University of Iowa says its political commodity market is even better than polls at predicting outcomes farther from elections. This after 24 years of existence and research.

The Iowa Caucuses were a prime example. The first poll quantifying the so-called Santorum surge came out from CNN/Opinion Research on December 28. But the Iowa Electronic Markets showed the rise of Santorum six days earlier, as prices started leaping for contracts betting on him to do well in the Iowa Caucuses.

Similarly, Newt Gingrich contracts in the same market started sliding around December 13th, days before polls reported the Gingrich drop.

University of Iowa's Berg says at first she wasn't sure that a commodity market could predict politics as well as it could business. But the results quickly made her reconsider.

"I mean, if you think about it, it seems logical that markets would work this way," Berg concluded, "They do things that you think an accurate tracking device should do… when there's news the price changes. When there's something being talked about but it's not new, the markets don't change."

The IEM are not perfect. On the morning of the Iowa Caucuses, traders believed Ron Paul would place second and Rick Santorum third.

But, again, the overall trends seems to be significantly accurate and in real time. Traders are reacting to news immediately, whereas polls take days to survey and report change in opinion.

So then what does the market say about the Republican fight?

In the IEM, Romney has been in front in the GOP nomination market for months and has seen another lift in contract prices since the Iowa caucuses. Looking at prices as odds, the market now is giving Romney an 83 percent chance of giving the final speech in Tampa.

You can also listen to American Sauce on iTunes, Stitcher or subscribe to the podcast via RSS.

– CNN's Dan Szematowicz and Emma Lacey-Bordeaux contributed to this report.

Filed under: 2012 • American Sauce
soundoff (6 Responses)
  1. diridi

    He is going to be front-runner in GOP, but will not win in 2012. This time, Obama wins with landslide victory.

    January 9, 2012 02:13 pm at 2:13 pm |
  2. Gurgi

    Romney is not the optimum choice, but literally anybody, even Hillary, would be better than the person occupying the white house right now. At least Hillary would follow the constitution.

    January 9, 2012 02:49 pm at 2:49 pm |
  3. papafritz57

    President Obama has more class and has done more to help the average American than any Republican in the past 30 years. Since the rightwingers cannot get beyond his skin color in their constant and unwarranted criticizm they will elect anyone regardless of qualifications, criminal behavior, racist beliefs, or religious craziness. They refuse to look at what our President has actually done for their benefit or give him any credit regardless of the truth. That the Republikkklans actually believe providing health care for all Americans is somehow a bad thing tells you just how illiterate and brainwashed these people are. Romney would refuse to show loyalty to his own mother if it meant he could get elected to higher office and those who think his road to wealth, buying old companies, firing their employees and selling the businesses to overseas moneymen, makes him a good American, need to look at their own conscience.

    January 9, 2012 02:59 pm at 2:59 pm |
  4. Rudy NYC

    Is there a breakdown of politcal ideology of the people who engage in these types of "investments"? And, what about the folks running it, while you're at it? Doesn't seem to me to be the sort of thing that would attract many moderates or liberals.

    January 9, 2012 03:07 pm at 3:07 pm |
  5. Gurgi

    @papafritz,,,,Wow,,,,,just Wow. You are so typical liberal and the brainwashing has done such a good job that it is not even worth trying to talk to you and pry your eyes open. You are another of the lost causes. I'm sorry.

    January 9, 2012 03:08 pm at 3:08 pm |
  6. Truth and Nothing But the Truth

    papafritz57 - President Obama has more class and has done more to help the average American
    The only "class" Obama has is "class warfare".

    And as for helping the average American, tell it to the millions of unemployed that just keep getting the same failed policies and finger pointing from Obama. When nearly 70% of the people think the country is going in the wrong direction, and Obama is the "leader from behind" of the country, then he's got a real big problem. To say Obama is in over his hed is the under statement of the century.

    January 9, 2012 03:41 pm at 3:41 pm |