Throughout history, prediction markets have served as a reliable forecast for who wins the race for President of the United States. This year, news stations across the world are looking to presidential futures markets to predict the chances of Obama, Clinton and McCain this fall.
KU School of Business Economics Professor and prediction markets expert Koleman Strumpf recently appeared on Fox 4 News in Kansas City. Strumpf discussed how these markets work, and why they do a better job than opinion polls.
"When you participate in a market, you're not telling the market, 'This is what I'm going to do.’ I'm going to guess what everyone else is going to do. So you're literally cutting to the chase," Strumpf said.
"Then the second feature is the money," he said. "People choose not to participate in something where they actually have something at stake unless they've actually thought a little bit about it."
Predictive markets combine the opinions of a diverse group of people to try and predict the probability of an event occurring or the value of something. The term "market" is used because people express their opinions of what they think is going to happen by buying and selling stocks representing possible answers.
Along with KU Marketing Professor James Lemieux, Strumpf created the "KU Virtual Stock Market" to teach predictive markets to his Finance students. These students use a portfolio of play money to invest in a variety of real-world situations, and they have been monitoring the presidential futures market all semester.
With the addition of two large Business School classes, the market now has 450 participants who make several hundred trades each day.
If you'd like to learn more about the KU Virtual Stock Market, you can use the login created for Fox 4 News at the following link:
http://kufin400.inklingmarkets.com/user/login
Login: myfoxkc
Password: myfoxkc
