Kevin Kelly on Iowa Electronic Markets

Kevin Kelly is one of the most interesting people I've met in recent years. Kevin and I had coffee early in 2007, arranged by our mutual friend, Michael Brodeur.

The founding editor of a little rag called Wired, Kevin is now a board member of the Long Now Foundation, which warrants a post all it's own. Suffice it to say that after we get into TED, Zack H and I need to figure out how to get invited to one of these board meetings, because these people are fascinating.

Kevin's got a great post on the Iowa Electronic Markets - a real-money trading system that allows people to invest in the probability of certain candidates winning or losing the presidential race. The system is pretty interesting - as is the fact that it's accuracy is uncanny.

Kevin's post includes a great explanation of how it works, along with charts of how candidates' prices have changed over the weeks.

Outside of the IEM most US predictions markets trade with token money to escape uncertain gambling and investor laws, which may prohibit real money trades. But in all prediction markets the price of a contract is decided by the collective demand, or in other words, by the collective mind. Outcomes with low expectations earn a low price. If you are a contrarian you can buy low value, low-expectation contracts, and if conventional wisdom is wrong (at that time), you’ll gain.

But the odd thing is that in these markets, the conventional wisdom of the crowd is usually right.

Read the whole post here.