A Web-based political exchange for election outcome predictions

Prices form in a free market by the interaction of supply and demand. In a highly competitive industry, prices fluctuate. An exchange market provides an arena for investors to exercise speculative opportunities based on their perception of price movements. We describe an online exchange where political futures contracts are traded. In the design, the liquidation value of a share of political futures contract is determined by the percentage of votes received by a candidate in the election. Such a political exchange was run during Taiwan's general election campaign in March, 2004. A feature of the experimentation is that money is fictitious in the trading. We devised ways to introduce incentives. We report predictions by the exchange that outperform conventional polls.