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Politics & Government

Put your money where their mouths are

Margaret Talev

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October 19, 2007 11:39 AM

WASHINGTON - You've seen the national polls and some surveys out of Iowa, New Hampshire and South Carolina.

But what's the smart money saying about who'll be the next president?

More than two months out from the first caucuses and primaries, one serious group of political gamblers is about two-thirds convinced that Hillary Clinton will win the Democratic nomination and not nearly as certain that Republicans will nominate Rudy Giuliani.

There are several ways to bet on presidential politics, including office pools, Web sites where no money changes hands and international online betting outlets.

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The Iowa Electronic Markets, run by the University of Iowa's college of business, is one of the most established. It allows bets of up to $500 per trader, doesn't take a cut and is tracked by many other universities.

Here's what the IEM's roughly 2,100 political traders had to say as of the middle of October.

- Clinton was trading at 68 cents per share among contenders for the Democratic nomination.

- Barack Obama had slipped, from about 17 cents in early October to 13.5 cents.

- John Edwards was trading at 5.1 cents.

- And the "rest of field," which lumps the other remaining Democratic hopefuls into one category, was up quite a bit, trading at 13.5 cents, up from only 5.6 cents at the end of September.Giuliani was the most expensive trade among Republican hopefuls, at 37.6 cents, up from 32.2 cents a week earlier.

He also seemed to be pulling away from Mitt Romney, whose 29-cent price hadn't budged.

John McCain was trading at 7 cents, meaning these gamblers weren't seeing the comeback that some McCain fans have been talking about in recent weeks.

"Rest of field" Republicans commanded an 11.4 cent trade.

What's been happening with Republican Fred Thompson is one of the IEM's more interesting trends. As of the start of this week, Thompson was trading at 18.5 cents. That's perfectly respectable - except compared against his peak of 36.6 cents back in June, long before he actually became a candidate.

After a hoped-for announcement date of July 4 came and went, Thompson began to slide. He hit bottom at 17 cents on Sept. 2, three days before launching his run. IEM traders gave him a few weeks to get his message, energy and momentum going. He climbed to 27.1 cents, but has been falling briskly since late September.

The real betting on the general election comes after the primaries, but for now IEM traders think the probability of Democrats beating Republicans in the popular vote is about 60 percent to 40 percent.

Tom Rietz, a finance professor at the University of Iowa and a co-director of the IEM political futures market, says traders are disproportionately young, white, male and educated - not a representative sample as in most polls.

Nevertheless, he said, their predictions are often on point because they're betting real money on "not what they will do but what they think the rest of the population will do."

IEM's traders accurately predicted the outcome of the 2004 general election. But they were wrong about the 2006 midterms. They thought Democrats would take over control of the House of Representatives, but not the Senate. Democrats took both.

To see the latest quotes, check the Iowa Electronic Markets Web site at http://www.biz.uiowa.edu/iem/.

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