How people elect parliaments
The insightful Iowa Electronic Market – an online real-investment prediction market that has tracked US elections since 2000 – is moving sharply to predict the next Republican and Democratic nominees for president of the United States.
In recent days the market has decisively called the races in favour of Billionaire Donald Trump and former Secretary of State Hillary Clinton.
In the past week $1 IEM contracts on Republican frontrunner Trump have rocketed to a price of 81 cents each.
IEM contract prices range between zero – indicating a valueless prediction – and $1.00 – indicating investor certainty about an outcome. Contracts are traded between participants continually, generating constantly varying prices which indicate the aggregate prediction of the whole investor pool.
After Senator Marco Rubio’s IEM stock rallied in the past week on the expectation that he would consolidate voter support among mainstream republicans, his price (which peaked at 41c) is now down again to 20c.
Investors are prepared to spend just 3c for a $1 contract on conservative Senator Ted Cruz winning the nomination. The price for any other alternative – the ‘rest-of-field’ – is also at 3c.
The IEM price graph for the Republican nomination on 27 February; Trump’s price line is green, Rubio grey
In the two-candidate Democratic party race, Hillary Clinton’s stock is at an even higher 89 cents. Bernie Sanders’ price is now below 10c.
The IEM graph for the Democratic nomination race at 27 February
Both the market trends seen in the past week are decisive by historical standards. No IEM trajectory in similar contests in 2000, 2004, 2008 and 2012 has shown a reversal of price leads of this magnitude at this point in the season.
Moreover, the two apparent decisions are feeding into overall IEM investor confidence in the final result in November. Whilst not as decisive, market participants are steadily confirming their long-standing confidence that the Democratic party – which they are now almost certain will be led by Hillary Clinton – will win the election.
Democrat win contracts are trading at 65 cents, but have briefly approached 70c in recent days.
Over 20% of the US population will vote in multi-state primary elections on Tuesday this week.