Copyright, Los Angeles Times, Monday, June 3, 1996 page D3

The Futures Look Bright for Internet Market Sites

The Internet has often been described as the ultimate marketplace of ideas, but not many people know how literally it deserves this description.

As a matter of fact, the Internet is the scene of at least two actual futures markets in which people buy and sell ideas, or, more specifically, prospects of future events. These Internet-only futures markets are fascinating in themselves, but they have broader implications as well, pointing to the medium's potential as an exchange for various commodities, as a venue for hedging risks great and small, and, of course, as an efficient odds market for gamblers.

Perhaps the best known manifestation of all this on the Internet so far is the Iowa Electronic Markets site at the University of lowa College of Business Administration, which you can reach by pointing your Web browser at The site is of particular interest now, as election season approaches, because at IEM traders using real money can buy and sell what amounts to presidential campaign futures.

To participate, you fill out a form and send in a check for between $5 and $500. Then you telnet to and begin buying and selling presidential campaign contracts. (You can also log into a practice market here if you don't want to spend real money.) In IEM's winner-take- all presidential campaign market, contracts for the winning candidate will be worth $1 each when the election has been decided. Contracts for the losing candidate will be worth nothing.

The last time I looked, Bill Clinton closed at 55 cents per contract. Bob Dole was at 40 cents. The implication was clear: People who put their money on these things believe Clinton has a much better chance of winning than Dole. (I don't understand why the ratio isn't even more lopsided, given Clinton's lead in the polls, but perhaps traders aren't being completely dispassionate. )

IEM maintains a second presidential market in which the final value of contracts is determined by the percentage of votes received by each candidate.

There's also a winner-take-all IEM market in the Russian presidential election. (Can't you just hear Lenin spinning in his grave?) Traders here consider Boris Yeltsin a huge favorite to win, pricing Yeltsin contracts at 69 cents and Gennady Zyuganov at just 19 cents.

I must say, I found IEM impossibly cool. The Web page quoting the latest prices in the presidential markets updates itself automatically every 15 seconds on your screen (assuming you are using Netscape Navigator), so you can always see up-to- the-minute prices on your holdings, which of course, are affected by the news.

Professor Joyce Berg, IEM's facuUy coordinator, says the U.S. presidential markets have 6,235 traders and about $165,000 in capitalization. She adds that IEM plans to expand this year by adding some congressional campaigns as well.

(A picture goes here, of the Idea Futures top page, with the caption: Alberta Research Council's site)
But IEM doesn't limit itself to politics. It also maintains futures markets in the price of Microsoft stock (5,847 traders and $95,570 in total investments) and in the price of shares in three publicly traded Minnesota companies and the Standard & Poor's 500 index. I should hasten to add that these financially oriented markets are only open to academic traders. No doubt this is to keep IEM from running afoul of federal regulators, who might not cotton to independent, unregulated financial markets springing up all over the Internet Indeed, IEM has already gained a "no action" letter from the Commodity Futures Trading Commission, which appears to understand the educational premise of the enterprise.

But then again, how will regulators stop someone in, say, Singapore from doing this very thing? IEM trading is open to anyone in the world who signs up and sends in a check.

Imagine the same sort of activities on a larger scale, conducted from a servet situated on some Caribbean island. For that matter, why stop with presidential candidates and the S&P 500? Why not take bets on where the next commercial airline crash will occur, whether the Clintons will stay married or what the median SAT scores will be in 1997?

Why indeed, the folks at the Alberta Research Council might ask. They have established a market known as Idea Futures, at The brain-child of Caltech graduate student Robin Hanson, Idea Futures lets traders use artificial money to buy and sell ideas, or rather propositions, that IF (they really use this acronym ) refers to as "claims."

The organizers cite a variety of advantages to the scheme. Aside from a reality check--you can quickly find out if anybody will "buy into" your latest wild idea-- you could also use such a system for "hedging financial decisions on technological issues. Back in the days of the Beta vs. VHS debate, if you decided to buy a Beta recorder, you could have simultaneously bought into the claim that 'VHS will dominate the market.' The profits on the VHS coupons could have paid for a new recorder to replace your white elephant."

The unit of funny money used to trade Idea Futures is the "credibill," which looks and acts much like a dollar. Thus, a contract that trades at 70 goes for what amounts to 70 cents.

Because anybody can establish a proposition -- the marketplace, after all, will put a value on it -- the variety of propositions is large and includes whether Anonymous (the author of the book "Primary Colors") will remain so, whether the Dow Jones industrials will close above 6,000 by July 31, and so forth.

For those who want to check up on IEM, by the way, IF traders have posted propositions concerning the upcoming presidential election. and even a proposition concerning whether Yeltsin will be reelected.

It last traded at 70, a pretty strong bet; by contrast, the proposition "alien abductions oroven true" last traded at 5.

Danlel Akst welcomes messagwes at His World Wide Web page is at

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