- Will CNN report on the John Edwards/mistress/baby rumors? | Hubdub

- Will a supposed affair between John Edwards and Rielle Hunter be confirmed? | Hubdub

-

UPDATE: The Charlotte Observer

UPDATE: National Review

UPDATE: Google’s cached webpages of the National Enquirer about John Edwards – Click on “Cached”.

UPDATE: Video

-

UPDATE: UPI + Daily Mail + National Review

-

UPDATE: ABC News + John Edwards’ statement

UPDATE: Associated Press + Silicon Alley Insider

UPDATE: LA Times + Huff Post + USA Today + Huff Post + CNN + NewsWeek + MSNBC

-

UPDATE: Blogumentary + Dallas Morning News + New York Times + Robert Scoble + CBS News

-

UPDATE: Elisabeth Edwards + Huff Post

-

UPDATE: CNN + ABC News + VIDEO + LA Times

UPDATE: API + NewsWeek

-

UPDATE: The ex mistress rules out a paternity test. So, now we know what the big money is buying: her silence on the fact that the child is John Edwards’ one.

-

UPDATE: American Spectator + Huff Post + Huff Post

-

UPDATE: ABC News

-

UPDATE: CNN

-

UPDATE: Cleveland Leader

-

-

Video

-

UPDATE: New York Times

-

A complete listing of the possibilities feels like a natural approach to answering the question of “which two teams will play,” but it is awkward to use in practice. For example, if at the market open a trader had a strong favorite among the American League teams but no opinion about the National League teams, it would have required trading in five contracts to obtain the desired holding. With many contracts offered, trading in some contracts will be thin – some of the unlikely pairings showed only one or two trades – and with thin trading the prices may not be reliable.

But beyond being awkward in practice, it seems flawed in principle. The two league championship series are conducted separately and the outcomes are independent of each other. Whether Colorado or Arizona wins the National League championship will have no influence on the likelihood that Boston beats Cleveland to win the AL. When the two events are independent, it would be more straightforward to use two separate markets. In this case one market would have started with four contracts and the other with five contracts, for nine total rather than 20.

The “which two teams” market isn’t the only example of the use of combinatorial contracts for independent events. Earlier this year a baseball market asked whether any pitchers would achieve 20-win seasons. The four contracts offered were: “Yes, in the American League,” “Yes, in the National League,” “Yes, in both leagues,” and “No 20-game winner.” (The contracts are exclusive such that “Yes, in the American League” means also “and not in the National League.”) This design again requires trade in two contracts to implement a single change in belief. If you decide the likelihood of a 20-game winner in the National League is 50 percent rather than the market’s 20 percent, you would need to buy both “Yes, in the National League” and “Yes, in both leagues.”

In both of these cases, independent markets for each league would allow traders to more directly express views about the outcomes of the two league championship series. Trade in American League prospects would not influence National League contract prices, which on the assumption that these are independent outcomes is just the way it should be.

A third baseball market example shows what may be a proper use of the structure. In mid-season a market was implemented asking “Will (general manager) Tim Purpura or (manager) Phil Garner be with the Houston Astros on opening day, 2008?” In this case there may be complicated dynamics at play that such a market could reveal. Perhaps it is likely that the owner would either dump both or dump neither, but not keep just one of the two. Or, perhaps firing one would make it more likely that the other remained. The combinatorial design makes it possible for the market to address these interrelationships. (As it happened, the market was only a few days old when both managers were sent packing.)

It is possible to make a case in favor of this inherently more difficult to use design. In the first two examples it appears fairly clear that the events are independent, but when it is unclear then the structure may help reveal the underlying dependence among outcomes. In addition, because of the way the multi-outcome automated market maker works at Inkling, trade in one contract can leave slight mispricings in the other contracts. Though the profit opportunities tend to be small, they may encourage the trader to keep trading until just the right relative prices emerge. In effect, the market tests just how strongly the trader feels about the precise set of prices resulting from his trades.

But from my experience tracking prices and trading in both of these markets, my sense is that the market is not tempting additional attention to small profit opportunities. Instead, these markets seem to generate prices suggesting constantly varying degrees of interdependence between apparently independent outcomes. For example, before the first game in the National League championship series the prices in the “which two teams” market implied that Boston had an 81 percent chance of beating Cleveland if Arizona beat Colorado, but only about a 70 percent chance of beating Cleveland if Colorado beat Arizona. After two games played in each series, the prices suggested a 65 percent chance for Boston to prevail if Arizona wins its series, and a 74 percent chance for Boston to prevail if Colorado wins the National League.

These relative price changes do not reflect rapidly changing views about the interdependence between events, instead they are artifacts of the mismatch between the combinatorial design and the independent events that have been joined together. In theory, combinatorial markets can be powerful tools to expose market beliefs about the underlying relationship between events. But when the event outcomes are themselves independent, and especially in play money markets where the incentives to work out small price differences can be weak, the combinatorial structure can be a barrier to effective price discovery.

The Fed decided: -0.50

That’s for the absolute accuracy. Now, what counts is the relative accuracy —the comparison between the prediction made by BetFair and the predictions made by the financial markets experts. I see that the rate cut of 50bp has come up as a big surprise to the Wall Street pundits. For example, here’s what Felix Salmon wrote this morning, before the Fed’s meeting taking place in the afternoon:

But my gut feeling is that Bernanke should announce a nominal 25bp cut in the Fed funds rate to 5% (hell, it averaged 5% in August anyway) along with a more substantial 50bp or even 75bp cut in the discount rate.

An interesting comparison would be Felix Salmon vs. BetFair over the next 10 years. I bet that BetFair will beat Felix Salmon and the other Wall Street pundits, over the long term.

—

The Federal Reserve’s statement:

Release Date: September 18, 2007
For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.

Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.

UPDATE:

BetFair predicted: -0,25

The Fed decided: -0.50

And, now, how did the economists fare? (Bloomberg link via Niall O’Connor of Betting market, who has a comment.)

It was the first time in almost five years that the Fed move differed from analysts’ predictions. The half-point reduction in the federal funds target was forecast by 23 of 134 economists surveyed by Bloomberg News. One hundred and five predicted a reduction of 25 basis points, while six forecast no change. A basis point is one-hundredth of a percentage point.

- BetFair’s probabilistic prediction: -0.25 @ 73%

- Bloomberg’s probabilistic prediction: -0.25 @ 78%

So, BetFair’s probabilistic prediction was close to Bloomberg’s one. Neither better, nor worse.

UPDATE: BetFair accurately predicted the direction of the interest rate change, but was too shy in its prediction of the amplitude of the interest rate change.

BetFair predicted: -0,25

The Fed decided: -0.50

That’s for the absolute accuracy. Now, what counts is the relative accuracy —the comparison between the prediction made by BetFair and the predictions made by the financial markets experts. I see that the rate cut of 50bp has come up as a big surprise to the Wall Street pundits. For example, here’s what Felix Salmon wrote this morning, before the Fed’s meeting taking place in the afternoon:

But my gut feeling is that Bernanke should announce a nominal 25bp cut in the Fed funds rate to 5% (hell, it averaged 5% in August anyway) along with a more substantial 50bp or even 75bp cut in the discount rate.

An interesting comparison would be Felix Salmon vs. BetFair over the next 10 years. I bet that BetFair will beat Felix Salmon and the other Wall Street pundits, over the long term.

—

The Federal Reserve’s statement:

Release Date: September 18, 2007
For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.

Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.

UPDATE:

BetFair predicted: -0,25

The Fed decided: -0.50

And, now, how did the economists fare? (Bloomberg link via Niall O’Connor of Betting market, who has a comment.)

It was the first time in almost five years that the Fed move differed from analysts’ predictions. The half-point reduction in the federal funds target was forecast by 23 of 134 economists surveyed by Bloomberg News. One hundred and five predicted a reduction of 25 basis points, while six forecast no change. A basis point is one-hundredth of a percentage point.

- BetFair’s probabilistic prediction: -0.25 @ 73%

- Bloomberg’s probabilistic prediction: -0.25 @ 78%

So, BetFair’s probabilistic prediction was close to Bloomberg’s one. Neither better, nor worse.