September 05, 2012

The political polls, as reported by the Iowa Electronic Markets, IEM, reflect unbiased voters’ preferences and the financial markets reflect the investors’ preferences. In both cases, individuals are voting with their pockets, and it behooves them to use the best available information to make an informed and, as statisticians like to say, a maximum-likelihood decision. Hence, if our theory is correct and we have measured voters’ and investors’ sentiments correctly, we should expect to see a correlation between voters’ and investors’ preferences.

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