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University Stock Market More Accurate Than Polls

October 22, 1990

IOWA CITY, Iowa (AP) _ When University of Iowa students talk about a candidate’s rising political fortunes, it’s no mere figure of speech.

Students can buy and sell shares in candidates on the Iowa Political Stock Market. It’s a lesson in the workings of stock markets and politics - as well as an up-to-the-minute, 24-hour picture of candidates’ electoral fortunes.

″Instead of taking economic or political science classes and listening to a professor telling us how it works, we get to invest our own money and see how it works,″ said Jeff Kraines, a senior accounting major from Deerfield, Ill.

The political stock market is the brainchild of economics Professors Bob Forsythe, George Neumann and Forrest Nelson and political science Professor Jack Wright.

They say their stock market is more accurate than polls.

″In a poll, a person isn’t really going to think. Their comments are more apt to be offhand responses to a phone call that comes during their dinner hour,″ Wright said.

″In our stock market, they spend time and put forth an effort to follow a campaign and make sense of what’s going on. They have a financial incentive driving them.″

For a minimum of $6, students, faculty and staff can buy and sell shares of candidates.

Each $2 buys two shares in a two-party political race - one share for each candidate. The shares are then traded on the open market, their prices rising and falling with the changing assessments of the investors.

Traders can plug into a computer 24 hours a day to learn the latest bids and buy or sell a candidate’s stock. When an offer to sell matches an offer to buy, the computer automatically executes the trade and handles the recordkeeping.

After the election, shareholders will be paid a dividend based on the fraction of the popular vote received by each candidate. A trader can make money by accurately predicting the outcome and then bidding to buy shares at prices below his forecast or by selling at prices above it.

To comply with Iowa gaming laws, participation is limited to students, faculty and staff.

During the last presidential election, the buying and selling by 193 investors proved to be more accurate than six national polls, Forsythe said.

The day before the election, the stock market showed George Bush with a lead of 7.6 percentage points over Michael Dukakis. Bush won with a 7.8-point margin.

CBS News came closest to the final vote, its last poll showing a nine-point margin. Other polls showed a spread from four to 11 points.

This year, the market is tracking two Senate races: one in Iowa, where Republican Tom Tauke is challenging incumbent Democrat Tom Harkin; the other in Illinois, where Republican Lynn Martin is running against incumbent Democrat Paul Simon.

As of Oct. 16, Harkin stock was selling for $1.05, while Tauke was at 95 cents. That means the stock market is predicting a Harkin victory with 52.5 percent of the two-party vote in the Nov. 6 election, Forsythe said.

In the Illinois race, Simon held a comfortable lead with his stock at $1.12, or 56 percent of the vote, and Ms. Martin at 88 cents.

The professors plan to run the stock market again for the 1992 presidential election and are looking to include eight to 10 other universities, Forsythe said.

The professors also set up on Oct. 16 a stock market for universities in Frankfurt, Bonn and Leipzig for German elections on Dec. 2, he said.

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