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Prediction Market Expects Polling Chasm to Close

Release: July 3rd, 2008

Prediction Market Expects Polling Chasm to Close

Traders expect the current gap between National and Labour to narrow, but are still picking John Key for the top job once the votes are counted come ballot day.

The New Zealand Political Stock Market lets pundits use virtual cash to build portfolios in a variety of election-oriented stocks. The markets include stocks (or 'contracts') whose final value will be determined by the outcome of future events.

As of 11p.m. Wednesday, July 2nd, market prices have National trading at $42.00, representing an expected party vote of 42% - well below the 50+ results in each of the major polls released last week. Labour sits at 36.5%, whilst the Greens are expected to make their strongest showing yet with 8% of the party vote.

No other parties make it past the 5% threshold, with NZ First falling just short at 4.9%.

Creator Qi-Shan Lim says that the markets are incorporating in the expectation of a Labour resurgence.

"National have had a fairly easy run of it so far, but the consensus appears to be that the golden weather won't last in the face of tougher scrutiny as the election draws closer".

However, traders are still predicting a National government, with prices in the 2008.GOVT markets giving National a 70% probability of preventing Labour from making it to a fourth term.

Prediction markets harness the power of markets and the phenomena known as the 'wisdom of the crowds' - the theory that the aggregate estimates of large groups of people turn out to be surprisingly accurate.

"In essence, instead of asking people 'who are you going to vote for?', we're asking 'who do you think everybody else is going to vote for?' - except, we don't do it while you're having dinner."

Prediction markets have a track record of outperforming polls. The Iowa Electronic Market has consistently done so for the U.S. Presidential elections since its inception in 1988.



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