I Am the Octopus, Goo Goo Ga Joob

A lot of what we talk about at Tech tAUk involves the sophistication of technology. And, in truth, we can’t help but marvel at the progress being made in the computing world. Ten years ago, the idea of laptop computers storing 1 terabyte of data was seemingly impossible. We didn’t get the iPod until 2001. Social networking sites like Facebook and Twitter have completely changed the way we communicate with each other.

Maybe there is something to be said for computing power that the rest of society just doesn’t have. We even have the technology to predict World Cup matches. Here’s an article from June 11th:

  • There’s a 37% chance Brazil and Spain will both make it to the final game; there’s only a 15% chance that neither of them will make it
  • There’s is a 1 in 25 chance Portugal will win the cup; 1 in 50 for Argentina
  • 42.92% chance that a country that has never won before will win
  • 19.07% chance that Australia will advance further than England
  • 65.71% chance that Denmark, Italy, Mexico and United States all will not advance to Semifinals
  • These odds were calculated by Yahoo’s Predictalot. And, in fact, Spain did make it to the final game, the Australia didn’t advance further than England, and neither Denmark nor Italy nor Mexico nor the United States made it to the semifinals. It just goes to show you that if you want to analyze statistics and predict outcomes, you can never go wrong with computers.

    With Spain’s victory over the Netherlands on Sunday, all of Paul the octopus’s World Cup predictions came true. What’s more, he also trounced some of the best minds from Goldman Sachs, JPMorgan and UBS. That’s right. An octopus beat the quants.

    So let me get this straight: an octopus correctly predicted the outcomes of every World Cup match it was given? An octopus.

    An octopus.

    While I let that sink in, let’s continue reading how the hell this happened.

    Paul had the advantage of simplicity. His handlers pasted flags on two boxes, each containing a mussel. Paul plucked a mussel from one box and, voila, you had Paul’s winner. Unless you believe this special octopus has the gift of foresight, each pick had a 50-50 shot, as good as flipping a coin.

    By contrast, the quants created mathematical models to figure out which country had the best shot. It was all in fun, of course, but they labored over historical records, filled up countless spreadsheets, consulted bookies, and then plugged the relevant data into their models. They even back tested them.

    As is their habit, the quants hunted for hidden relationships in prior matches. Goldman tested whether economic output as measured by Gross National Product or its in-house gauge of sustainable growth and productivity known as GES were correlated to FIFA rankings. Turns out they’re not.

    JPMorgan found that FIFA ranking, bookmakers’ odds, recent performance and other factors offered a reliable guide to picking prior World Cup winners. Brazil looked like the strongest team, according to the quant model. But the match ups and the possibility of penalty kicks pointed to another victor: England.

    Goldman Sachs and UBS picked widely favored Brazil. Neither Brazil nor England made it very far. The Netherlands upset Brazil in the quarterfinals. Germany knocked out England in the round of 16.

    So some of the greatest minds we have got their asses handed to them by a frigging octopus. We used mathematical models, statistics, historical background, and some other important stuff, and the octopus, with all its octopussiness, undercut us at every turn!

    Curse you, Pulpo Paul!!!

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