Thursday, July 08, 2010

Soccer ....Fooled by Randomness...

The psychic octopus from Germany got it right again. For those of you who say ...Huh? You must be non-soccer fans missing out on the World Cup excitement and the whole circus surrounding the event. For those who don't know, there is a famous octopus called Paul in Germany that has been predicting the outcome of World Cup soccer matches played by Germany. His record for this World Cup is a perfect 6 out of 6 matches. This is quite amazing. The chance of getting it right 6 out 6 is roughly 1 in 300. That means that if started with a bet of $1000 on Paul's predictions you will end up with $300K by the time yesterdays Spain vs Germany match ended.

Here's Paul in action:



Paul did far better than the best new paper 'expert' punters ...he did even better than this bunch analysts from UBS, Goldman and JP Morgan [World Cup Prediction A Meta Analysis]who used sophisticated models and got everything wrong - they applied the same models as those they use to come up stock market predictions sent to clients so think twice before you follow their recommendations. If you think I'm asking you to gamble your hard earned money on Paul the Octopus, ..hack no. I told this story to show you how futile it is to predict the outcome of events that are random and how analysis can actually prove a waste of time. As for Paul being psychic...I don't think so...I think he got lucky and those who made money off his predictions are also lucky. It is only on hindsight we know for sure he will be perfectly right. Paul might get it all wrong at the next tournament and those who punted heavily on his predictions will be asking for him to be cooked alive.

Gambling is bad. I'm not here to encourage gambling but the next part intends to show how groupthink and biasness in judgement can lead to errors and opportunities for some people. It is hard to win at soccer betting and you shouldn't do it even for fun. The Singapore Pools set the odds that ensures that it wins. As more people put their bets on various outcomes, they adjust the odds based on how many bets are put on an outcome. Suppose the Singapore Pools offer odds at 1 to 5 Brazil will beat a weak team. If there are many fans of Brazil who think it is 'impossible' for them to lose and these fans go all the way to bet that Brazil will win. Singapore Pools will lower the payout to '1 to 6' and if more bets for Brazil comes in they lower the payout further to '1 to 7', '1 to 8' and so on. As the odds shift because people become fixated by the idea that 'Brazil cannot lose' egged on by expert opinion in The New Paper and so on, it is possible that they become so bias that it becomes favorable to bet against them. While the probability of Brazil winning is still higher, the high payout from Brazil losing more than compensate for the low probability of such an outcome. This approach is similar to the notion of contrarian investing. While it is hard to predict where financial markets are headed, it may be less hard to figure out whether other investors are very biased to a certain outcome i.e. either too bearish or bullish relative to the underlying reality.

18 comments:

Anonymous said...

Instinct better than intelligence, not improbable.

If man(kind) has no intelligence to lie, every word is reliable and trustworthy.

patriot

Anonymous said...

Is Paul the Octopus better than our MM LKY?

No one beats our MM, no one!

Paula said...

can we pay Paul $3,000,000 to be our SMM - Supreme Minister Mentor?

Paul can mentor lky and improve the latter's forecasting abilities.

Anonymous said...

I think MM LKY will always be right when he predicts Singapore political outcome, or rather election outcome. If there were such a bet, I will bet big on his prediction.

Other things I not so sure so will not bet at all.

skeptic said...

Long run success by randomness is not only possible but more probable than you think.

One way to see whether data noise is truly random or faked by humans is to look for such patterns.

Anonymous said...

Biased or not biased. All I know is BP has gone up by nearly 15% in the last 7 days.

One thing you failed to mention Lucky was the need for balls of steel.

I notice one thing. We make our own luck. As the people who are really successful are cool as ice under pressure.

Anonymous said...

Although we human beings are far more superior then our animal friends, there is something which we cannot belittle.
Animal do possess certain ability to perform extraordinary feats (not just physical feats).
For e.g. animals can predict the coming of an earthquake/tsunami.

The hype surrounding paul may interest people to actually get inspiration for any future events(lottery, election results ... ) from animals instead of fortune tellers who used various divination techniques (which is still human based).

Who knows u may struck rich from the help given by animals.
As a result, our friends from the animal kingdom may get treated better in return. Mother nature has it's own ways and secrets.


The tide may be turning!
Singapore Pools! It's time to PAY and PAY back!

Anonymous said...

I'm sure Paul will be able to do a better job than Aunty Ho.

Anonymous said...

The odds of the Octopus predicting it right 6 times in a row is 1 in 64, not 1 in 300.

Assuming each match is a 50-50 proposition (i.e. 0.5^6)

Lucky Tan said...

anon 16:17,

The Serbia vs Germany match in which the Octopus picked Serbia was something like a 1 in 6(?) or something like that. There is also one outcome draw so it is 1 in 3 for evenly matched teams.

Ghost said...
This comment has been removed by the author.
Ghost said...

Paul started forecasting since the Euros 2 years ago. In total (with the game against Spain included), he is 10 for 11! That's over 90%! It's not just improbable, frankly it should be impossible!

Anonymous said...

Maybe we should have a psychic octopus predict the outcome of the next GE. Stick the PAP logo and Opp logo on the 2 boxes.

Anonymous said...

Depends who you are dealing with. If you believe in randomness. Then a rabbits foot can take you places.
If you dont then, you will make your own luck. If you say everything is random. How come GIC and Temasek makes big losses while Warren Buffet and the Qatari SWF seem to be making so much money.

Anonymous said...

how did you get 1/300?

Anonymous said...

Locally, we have our own psychic - Mani, the rose-ringed parakeet. It has been 100% correct so far and has predicted that Spain will win the world cup.

http://uncledicko.blogspot.com/2010/07/mani-parrothas-made-3-predictions-for.html

Anonymous said...

Mr Skeptic

//
Long run success by randomness is not only possible but more probable than you think.

One way to see whether data noise is truly random or faked by humans is to look for such patterns.
//

Given Mr Lucky's apparent complete lack of knowledge of the financial markets and his undeniably superior performance ... I agree ... 1st time for everything ...

Anonymous said...

Lucky,

If you choose to include the possibility of a draw ie he chooses neither box, then odds are in 1 in 3 per match. For 6 matches, the odds would be 1 in 729 (3 to the power of 6).

The octopus's picks are independent of the bookie odds. so even if the odds are 1 in 6 or whatever, the octopus's decision is not affected by that. Assuming he likes either box equally, then the odds would be 1 in 2 per match or (1 in 3 if you want to consider draws)