Introduction and description of election futures markets The Iowa Electronic Markets are small-scale, real-money futures markets conducted by the University of Iowa College of Business. In this review we focus on the best known of these markets, The Iowa Political Markets. Contracts in these markets are designed so that prices should predict election outcomes. The data set contains the results of 49 markets covering 41 elections in 13 countries. The Iowa Markets operate 24-hours a day, using a continuous, double-auction trading mechanism. Traders invest their own funds, make their own trades, and conduct their own information search. The markets occupy a niche between the stylized, tightly controlled markets conducted in the laboratory and the information-rich environments of naturally occurring markets. By virtue of this design, the Iowa Markets provide data to researchers that is not otherwise available. Investments are typically limited to a $500 maximum per trader and general

There is evidence that people do not fully take into account how other peoples actions are contingent on these others information. This paper denes and applies a new equilibrium concept in games with private information, cursed equilibrium, which assumes that each player correctly predicts the distribution of other players actions, but underestimates the degree to which these actions are correlated with these other players information. We apply the concept to common-values auctions, where cursed equilibrium captures the widely-observed phenomenon of the winners curse. We also show how cursed equilibrium predicts other empirically-observed phenomena, such as trade in adverse-selection settings where conventional analysis predicts no trade, and naive voting in elections and juries where rational-choice models predict that voters fully take into account the informational content in being pivotal.

In a meta study of 25 political stock markets conducted in Germany in the last decade we analyze their predictive succes. We observe that the predictions of political stock markets are highly correlated with the corresponding polls, yet the markets are able to aggregate additional information. One explaining factor of the variations in predictive success of the German stock markets relative to the polls is market efficiency. Even though the overall predictions of the political stock markets are well on the aggregate level we f'md systematic prediction errors on the contract level that can be attributed to the vote share size and to individual trader biases.

Byron L. Dorgan (D-N.D.) held a press conference to call attention to a DARPA (Defense Advanced Research Projects Agency) project that would allow investors to bet on future political events in the Middle East—including terrorist attacks—through a commodity-market style trading system. On July 29, newspapers responded by denouncing this “unbelievably stupid ” and “grotesque ” market. Later that day, the program was officially cancelled. What can policy-makers and scholars learn from the fury generated by these events? Despite a blizzard of attention, the quality of political debate over the market was poor. Politicians rushed to deliver grandiose statements condemning it, many of which found their way into equally incensed newspaper articles. Little of what appeared in print, however, contained developed arguments about how traders would behave in the

Byron L. Dorgan (D-N.D.) held a press conference to call attention to a DARPA (Defense Advanced Research Projects Agency) project that would allow investors to bet on future political events in the Middle East—including terrorist attacks—through a commodity-market style trading system. On July 29, newspapers responded by denouncing this “unbelievably stupid ” and “grotesque ” market. Later that day, the program was officially cancelled. What can policy-makers and scholars learn from the fury generated by these events? Despite a blizzard of attention, the quality of political debate over the market was poor. Politicians rushed to deliver grandiose statements condemning it, many of which found their way into equally incensed newspaper articles. Little of what appeared in print, however, contained developed arguments about how traders would behave in the

We investigate trading behavior and prices in an experimental financial market: a large scale electronic political stock market. We consider two types of 'irrationality': The first type of irrationality deals with the fundamental assumption that agents prefer more to less. The second type of: irrationality is an upward bias in bid prices potentially caused by loss aversion. With respect to the basic assumption that agents prefer more to less we find that in more than 50 percent of the traders act irrationally in the sense that they violate this fundamental assumption frequently (at least 10 percent of the time). However, the impact of this type of irrationality seems small, since related losses consist of less than 1 percent of total investments in this market and we find no effect on prices. With respect to the second type of irrationality our evidence shows a strong impact on prices: The sum of the bid prices of all traded stocks exceeds the fundamental value of the market about 10 percent of the time. We argue that this systematic bias in bid-prices is a consequence of 'loss aversion'.

There is evidence that people do not fully take into account how other people’s actions are contingent on these others ’ information. This paper defines and applies a new equilibrium concept in games with private information, cursed equilibrium, which assumes that each player correctly predicts the distribution of other players ’ actions, but underestimates the degree to which these actions are correlated with these other players ’ information. We apply the concept to commonvalues auctions, where cursed equilibrium captures the widely observed phenomenon of the winner’s curse. We also show how cursed equilibrium predicts other empirically observed phenomena, such as trade in adverse-selection settings where conventional analysis predicts no trade, and "naïve " voting in elections and juries where rational-choice models predict that voters fully take into account the informational content in being pivotal.

1 Introduction and description of election futures markets The Iowa Electronic Markets are small-scale, 1 real-money futures markets conducted by the University of Iowa Henry B. Tippie College of Business. In this review, we focus on the best known of these markets, The Iowa Political Markets. 2 Contracts in these markets are designed so that prices should predict election outcomes. The