Legally investing money in national politics, presidential election


With the presidential campaign in full swing, there's a new poll out almost every day. But it may not be the pollsters, but the investors in the University of Iowa's political stock market who are more astute at predicting the outcome of the election.

Professor Joyce Berg runs the Iowa Electronic Markets (IEM) out of her office in the university's business school.

"What we've found is in about 75 percent of the cases, the IEM price is closer to the actual election outcome than the polls are," said Berg.

That's because the polls gauge who voters want to win, while the electronic markets track who investors believe will win, and are even willing to put money on it. And money usually triumphs.

Investors can wager a maximum of $500 on the outcome of the November 6 election. In the presidential race, you can purchase a contract on whether Romney or President Obama will win the popular vote, no matter who actually wins the election.

After Wednesday night's presidential debate, Romney is getting a spike from investors who think he will capture more votes.

But since the incumbent president is still heavily favored, if Romney does get more votes, investors get better odds and a much higher payoff.

For example, if you invest $32.50 on Romney right now and he does capture more votes, that investment will then be worth $100. Obama traders would have to shell out $69.90 to colelct $100.

You can also wager on whether the Democrats or Republicans will control the House of Representatives and the Senate.

USC political science student Tyler Talgo invested $500.

"I have my money on the Republican House and the Republican Senate," said Talgo.

Since his investment, the odds of Republicans capturing both houses of Congress have dropped dramatically: On September 2, it was better than 55 percent; by Thursday it had dropped to about 14 percent.

Whether his investment pays off, for Talgo it's a valuable lesson not taught in his classes.

"I thought that it would be a good chance to learn a little bit more and make some money with it too," said Talgo.

The Iowa Electronic Markets is the only legal way to place money on the outcome of the election in the United States, as it's operated for academic research.

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