Iowa boosts Obama and McCain on prediction market

By David Alexander

WASHINGTON (Reuters) - Political prediction traders on Friday made Sen. Barack Obama the favourite to win the New Hampshire primary and sharply lowered the odds on him winning the overall Democratic nomination, a day after he won the first contest of the presidential election.

Traders on the Ireland-based Intrade prediction market at midday on Friday were giving Obama a 65 percent chance of winning the January 8 New Hampshire Democratic contest, with New York Sen. Hillary Clinton having a 39.7 percent chance.

The day before Obama's convincing victory in the Iowa caucus, the first in a state-by-state process to choose party candidates for the November presidential election, traders were betting Clinton had a 60 percent chance of winning in New Hampshire, versus 42.4 percent for Obama.

Clinton placed third in Iowa, narrowly edged out of second place by former North Carolina Sen. John Edwards.

Although Edwards immediately began painting the New Hampshire race as a contest between himself and Obama, his second-place Iowa finish did not impress traders, who gave him only a one-tenth percent chance of winning, down from 2.1 percent the day before the Iowa vote.

Traders on Dublin-based Intrade can buy and sell contracts based on which party they expect to win the U.S. election and which candidates they expect to win or lose the various state nominating contests.

Contracts are structured so that prices can be read as the percentage likelihood of the candidate winning the race. So traders buying and selling Obama contracts at 65 believe he has a 65 percent chance of winning.

Researchers who study political forecasting markets say their predictive power is comparable to opinion polls.