The Iowa Electronic Markets (IEM) are one of the earliest and most cited real-money prediction markets. They were created in an academic setting to study whether markets can forecast elections and other outcomes, often using small stakes and strict participation rules.
What It Was
IEM is run by academics at the University of Iowa and has historically focused on political forecasting contracts (for example, U.S. presidential elections). It operates as a research and education project, not a venture-backed consumer product.
How It Worked
IEM offered contracts tied to outcomes like vote share or election winners. Traders buy and sell based on their beliefs, and prices move as new information arrives. Because it is a research market, participation and position sizes are typically limited.
Why It Matters
IEM became famous for showing that markets can produce strong forecasting signals, sometimes comparable to or better than polling snapshots. It also became a foundational reference point in academic literature about information aggregation.
Lessons for Modern Platforms
- Small stakes can still produce meaningful signals if participants care and have information.
- Clear contract definitions improve trust and reduce disputes.
- Liquidity and participant diversity are limiting factors in accuracy.
Key Takeaways
- IEM is the classic academic proof point for prediction market forecasting.
- Its value is credibility and research, not trading scale.
- Limits can protect the market, but also reduce liquidity.