Planet Money

Before Kalshi and Polymarket there was the Iowa Electronic Markets

26 min

This episode of Planet Money explores the history of prediction markets, from their origins in 19th-century election betting to the Iowa Electronic Markets (IEM) launched by three economists in 1988. It reveals how IEM outperformed traditional polls 74% of the time and how early election betting faded due to competition from horse racing and the rise of scientific polling. The story highlights the enduring tension between prediction markets and gambling regulation.

Summarized by Podsumo

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✨ Key Takeaways

1

The Iowa Electronic Markets, created after a three-beer lunch in 1988, beat traditional political polls 74% of the time between 1988 and 2004.
2

Election betting markets existed as early as the 16th century in Venice and Genoa, and in the U.S. from George Washington's era, with traders from Tammany Hall and Wall Street.
3

The golden age of prediction markets (late 19th century to WWII) declined due to competition from horse racing (more frequent events) and the rise of Gallup-style scientific polling.

💬 Notable Quotes

"We said, well, gee, you know, as economists, what would we do if we were going to try to predict the outcome of something? And what's natural for a bunch of economists is said, well, let's run a market on it."
"Between 1988 and 2004, the Iowa electronic markets grew from a one-off experiment to one of the most reliable predictors of American presidential elections. During that period, its predictions beat traditional polls 74% of the time."
"The problem with elections... is we don't have enough of them. This is around the time when thoroughbred racing started to really take off. And so instead of a couple events a year, you could have 12 races a night."