Ben McCune is no political expert. An applications developer in University of Iowa Information Technology Services, he keeps up on politics regularly, maybe more than most people, but is not the type you’ll see in the punditocracy on CNN or the Sunday morning news shows.
Still, his opinion has a bit more influence than the average voter’s. McCune is a trader on the Iowa Electronic Markets’ political prediction markets, giving him a Who-ish voice that’s heard by political Hortons on the campaign trail and in Washington, D.C.
Started in 1988 and operated by faculty in the Tippie College of Business, the IEM is a real-money prediction futures market that’s used as a research tool to study how effectively the “wisdom of crowds” theory can predict outcomes of future events. The market operates as any futures market, except that instead of trading contracts predicting the future price of hogs or wheat or light sweet crude, traders buy and sell contracts based on the outcome of a future event. Traders can invest up to $500. Contracts on the winning outcome pay off at $1, while all other contracts pay zero.
Starting with the 1988 Bush-Dukakis race, the IEM has run markets for every presidential election, party nomination and the party configuration of Congress. It’s also dabbled in individual Congressional elections and governor’s elections. The IEM has proven to be astonishingly successful, with the Winner Take All market frequently seeing the winner months in advance. Its Vote Share market, where traders predict the percentage of the vote each candidate will receive, has a margin of error of just 1.8 percent.
Joyce Berg, professor of accounting in the Tippie College of Business and director of the IEM, said the market has about 1,200 active traders during most election cycles. The typical trader is a white male with a college degree and a professional occupation with a high income. She said many of them are politics geeks who live in Washington, DC, or work as traders on the financial markets in New York City and who trade on the IEM just for fun after work.
McCune doesn’t live in New York or Washington, but he is white and male, and he has a PhD from UI.
How long have you been interested in politics?
I started paying attention about 15 years ago at SUNY-Binghamton, and I’ve been following it pretty closely since so I like to think I make informed decisions.
When did you start investing on the IEM?
It was about eight years ago. I read a newspaper story about the IEM and thought it sounded interesting since it’s all about probabilities, and since I majored in math at Binghamton, it’s a natural mode of thinking for me. I traded on the California Governor’s Recall election market, buying contracts for Cruz Bustamante, so I lost. I knew that Arnold was getting a lot of attention, but I thought his chances were overstated because of his celebrity and the novelty of it. I thought people would go for the boring politician in the end, but I was wrong.
Since then I’ve invested in most of the political markets. I’ve bought some contracts on the 2012 Winner Take All presidential market that’s open now but haven’t been as active a trader as in the past. There’s lots of uncertainty so it’s hard to speculate on which way things will go.
What’s the biggest challenge of trading on the IEM?
Aside from keeping up with the news so you can make an informed decision, it’s keeping your emotions out of it. You have to watch for your own biases sneaking in. You don’t want to buy contracts for the candidate you want to win; you want to buy the candidate you think will win.
But buying against your emotions makes for a good way of hedging. There are times that I may not have liked the political outcome of the election, but at least I made some money. And there are times I lost money, but liked the outcome.
What’s your most unusual trading experience?
I purchased contracts for Al Franken on the Minnesota Senate market in 2008 and wound up losing because the IEM determines the winning contracts based on election night results. Since Norm Coleman was initially declared the winner, his contracts paid off. Recounts don’t matter on the IEM.
Has the IEM made you rich?
I initially invested $100 in 2003 and last time I checked, I had about $180 in my account.