The World Cup started with vuvuzelas and ended with Paul the octopus. The world’s most famous cephalopod grabbed headlines by correctly predicting the winners of eight straight World Cup matches, including today’s victory by Spain over the Netherlands.
I’ve enjoyed Paul’s exploits, but his success got me wondering: just how many animals are out there picking World Cup winners? Could it be that, oh, 256 animals were making predictions when Paul started his run and he’s just the lucky one?
Well, after a little bit of internet snooping, I haven’t found all 256 yet, but I bet they are out there. For starters, there’s Mani the parakeet who called four quarterfinal matches correctly, but then fowled up by picking the Dutch over the Spaniards in the final.
And then there’s this article in the Christian Science Monitor, which recounts failed prognostications by a sloth, a hippo, and a monkey.
So that’s at least four. As for the other 251 failed psychics that I think are out there, my guess is that Google doesn’t know about them. And that, friends, is what’s known as survivorship bias. That bias is a big deal in financial markets. For example, the performance of existing mutual funds is much better than that of mutual funds generally because the laggards get closed and drop out of the data.
And so it is with animal psychics. The lucky ones grab headlines, while the laggards are forgotten. Which doesn’t mean that I begrudge Paul his fame. Indeed, I think his fame should spread right into finance and statistics classes when school starts in the fall.
Paul was 100% right during the World Cup and 80% right during the European Championship. Paul will be zero percent right for the next World Cup. Octopusses don’t live very long and he will not be around in 4 more years.
Terry Pratchett said, “Dragons exist if you believe in them” – there may also have been a psychological component at work with the players, who on the Spanish side were elated, and on the Dutch side dejected, to find Paul had chosen Spain to win. Irrational Cephalopodic Exuberance?
That’s why we pretend that “hedge funds” are good things, of course.
Strangely, the same people who were “great traders” for banks and IBs when they go on to lead a failed hedge fund–not just thinking of Merriweather here–are not discussed.