At MSNBC.com, Mike Brunker has a very nice story discussing gambling markets and presidential elections. He covers the gamut -- the current election, the Iowa Electronic Markets, internet firms, and historical markets run in pool rooms and stock exchanges.
Brunker quotes a number of interesting people who work on these topics. Here are two contrasting views, one from an economist who helped establish the IEM, and one from an executive with the Gallup Organization.
The markets work the same way that the pari-mutuel system works at the racetrack, where the crowd is better at picking winning horses than any individual handicapper, said Forrest Nelson, co-director of the Iowa Electronic Markets at the University of Iowa.
"It's the wisdom-of-the-crowd argument," said Nelson, an economics professor at the university's Henry B. Tippie College of Business, which has been running a political futures market since 1988. "No one person understands very much and the nature of their information is very different. (The markets) fail when there is no information out there or the traders dont have access to the information. But if the information is out there and just spread around, the markets have a good chance of getting it right."
Here's the pollster:
Eric Nielsen, senior director of media strategies for the Gallup Organization, said that the markets are of limited usefulness because trading is confined to a sophisticated group of Internet users.
"It's just not representative," he said. "They may get lucky and pick the election, but when we go out and do a poll, every American adult has an equal chance of being contacted."
His polls have been repeatedly "blasted" (not my term - read the story) by predictions from betting markets, yet the claim is that "markets may get lucky"??? Like "old media," it would seem that Mr. Nielsen and the Gallup Organization have their heads in the sand. My bets are on Professor Nelson & company.