With the 2008 Presidential Election fast approaching, few people agree on the likelihood of one candidate over another. Political pundits across the nation have begun using predictive markets to make their projections.

Predictive markets allow a community of knowledgeable individuals to bet on the likelihood of a particular outcome. KU Business Professor Koleman Strumpf recently appeared on CNN’s “This Week in Politics” to discuss the history of these markets and the merits of this method for choosing candidates.

“The markets have a really tremendous track record dating back to the early 20th century,” Strumpf said. “So in 1904, The New York Times reported on the front page what was going on at the Wall Street betting markets since no Gallup Poll existed at that time.”

Along with KU Marketing Professor James Lemieux, Strumpf created the "KU Virtual Stock Market" to teach predictive markets to his Finance students. These students use a portfolio of play money to invest in a variety of real-world situations, from betting on who will win a KU basketball game, to the nominee for a state primary. With the addition of two large Business School classes, the market now has 450 participants who make several hundred trades each day.

While these markets remain reliable predictors of probability across time, they cannot account for every outcome.

“An upset is a surprise which people hadn’t anticipated,” Strumpf said. “Sometimes, there are quick shifts of opinion for which there’s no way to forecast in advance.”

Click here to read a transcript of Professor Strumpf’s appearance on CNN.