Political markets see Clinton vs Giuliani contest

By David Alexander

WASHINGTON (Reuters) - Traders on the Iowa Electronic Markets, which have been predicting U.S. elections with surprising accuracy for 20 years, are expecting a tight presidential vote next year, with the Democrat narrowly defeating the Republican.

And the most likely match-up? Hillary Clinton vs. Rudy Giuliani.

The non-profit market, run by professors at the University of Iowa in the key early voting state and allowed to operate since 1988 by special permission, is unique in the United States because it is the only one where investors put real money -- small amounts under $500 -- on the line.

It was started by the academics to see if markets, which are good at translating economic and financial information into a price, would be as good at synthesizing political information.

Joyce Berg, an accounting professor and member of the Iowa markets board, said the markets turned out to be better than national polls in predicting the final election results just days before the vote.

They scored even better against polls the farther away they were from the election.

"In just about 75 percent of the cases," Berg said, "the price in the market is closer to the actual outcome of the election than the polls were."

Though more than a year away, traders now are betting the November 2008 election will pit the two New York politicians against each other in the run for the presidency.