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Political science test

Presidential hopeful Hillary Clinton reaped a windfall of political contributions today in the wake of her victory in the Pennsylvania primary - and if her candidacy actually pays off, investors in Clinton's political fortunes could reap a windfall as well. That's the bottom line from today's prediction markets, where most of the money is betting that her Democratic rival, Barack Obama, will still prevail despite Tuesday's setback.

Economists have been watching the political markets for months now, to find out whether they do a better job than traditional polling when it comes to predicting the eventual course of a campaign. In the Iowa Electronic Markets, for example, online users can "invest" up to $500 in shares that are tied to the outcome of the Democratic (or Republican) primary season.

Today, you could have bought into Clinton's chances at around 18 cents a share. If she ends up winning the Democratic nomination, you can redeem your shares at $1 each. That would be better than a 400 percent rate of return. But if she loses out to Obama (or a dark-horse candidate), you lose all of your investment.

You might think that Clinton's stock would have risen (and Obama's stock would have fallen) after Tuesday's win, but the market was relatively unchanged. "In fact, Obama has moved up a point and a half," said University of Iowa spokesman Tom Snee.

Snee said Obama's slight strengthening may be due to the perception that he still has the nomination locked up, and that Clinton is running out of time and money. But last week, the online magazine Slate - which has been closely following the prediction markets - wondered why the markets have been wrong so often this year.

To be fair, I should note that a lot of pundits have made wrong predictions about the course of this year's campaign. Lately, the prediction markets seem to be distilling the wisdom of crowds of pundits rather than making markedly different prognostications. So there may be more uncertainty to the political futures of the candidates than the current market prices would indicate.

For an economist's take on the Pennsylvania primary, check out today's assessment in The Wall Street Journal from David Rothschild and Justin Wolfers of the University of Pennsylvania's Wharton School. Wolfers also handicaps the uncertain race ahead in a posting to the Freakonomics blog.

Speaking of uncertainty, I also checked in today with Shawn Lawrence Otto, the chief executive officer of Science Debate Inc. Otto and his colleagues are still trying to organize a campaign debate centering on science and technology issues, to be presented in cooperation with public-TV broadcasters next month in Oregon. So far, the outlook is hazy at best.

"Who knows how the campaigns will judge how the landscape may or may not have changed after what happened yesterday," Otto told me.

He said last week's debate in Philadelphia demonstrated how much the nation needed to focus on such issues as dealing with climate change and energy needs, fostering medical advances and technological innovation, and generally presenting a positive vision for America's future.

"The ABC debate was roundly criticized for its lack of substance," Otto said. "That should be a wakeup call to the candidates, that Americans are hungering for a higher-level dialogue."

Even if the candidates pass up the May opportunity, as it appears they will, the ScienceDebate 2008 effort will continue. "It's still valuable to build momentum looking toward the general election," Otto said.