As an economist, I am sometimes assigned a rather low position on the evolutionary ladder. For example, I have been told that a dart-throwing monkey would beat most equity analysts at picking stocks. Now, after the World Cup, I've been downgraded a notch below a mollusk.
I admit it: I got clobbered by an octopus at forecasting who would win football’s World Cup.
Paul, the two-year-old cephalopod from Sea World in Oberhausen, Germany, correctly predicted the outcome of all eight World Cup games he was asked to forecast – seven involving Germany, plus the finals. If the odds of all the games were even – like a coin toss – picking the right winner eight times in the row would have a likelihood of 0.39%, or about roughly one in two hundred fifty. So Paul’s success edges toward the spectacular.
Now I don’t want to look like a bad loser. In fact, I greatly admire this sympathetic cuttlefish. After all, he’s a fellow soccer fan. But I do want to stress a couple caveats to his triumph.
For one thing, the set-up of Paul's prediction experiment left some room for spurious relationships. To indicate his call, Paul had to choose between two boxes of food, each bearing the flag of one of the contesting countries in a coming game. Some experts have argued that octopuses are attracted to the color yellow. Others, who think these eight-armed multi-taskers are colorblind, say they are more inclined to go for high-contrast designs. This would explain why Paul chose Germany, with its red, black and gold banner, in six instances but preferred Serbia and then Spain, whose flags are even more high-contrast.
Not being a marine biologist, and lacking any personal experience with the species beyond the dinner plate, I obviously cannot contribute much to this discussion. It remains a puzzle, though, why the team with the most highly contrasting flag colors would prevail over the quieter designs.
A second caveat relates to so-called “survivorship bias.” I am not referring here to Paul's own survival, although some German fans threatened to transform him into fried calamari after he predicted Spain’s semifinal win over Germany. Rather, I mean the attention, sometimes exaggerated, that is paid to a winner.
After he successfully called four games in a row, Paul started getting a lot of media attention. Leon, the porcupine at the Chemnitz Zoo, was wrong about Germany's first game and was promptly ignored. Mani, the parakeet of Singapore, correctly forecasted all the quarterfinals but after he erred on one of the semifinals and, unforgivably, the finals, he fell out of the headlines. If we took a worldwide survey, I am quite sure we would find many other animals that made wrong predictions. They simply got no press.
Survivorship bias refers to the logical error of reading too much into the stories of winners or survivors. Of course, it is usually only the survivors who live to tell their tale. But these narratives tend to ignore the experiences of the many others who did not survive. Over-emphasizing the tales of survivors can lead us to draw inaccurate conclusions.
This is especially important to bear in mind when it comes to investing. We tend to focus on our past investment successes. And even if luck might have been crucial, we look for more flattering explanations that reflect our skill and timing. In reality, this kind of selective narrative may not hold true in the future.
Again, my congratulations to Paul, who is now retiring. Since members of his species rarely live beyond three years, he won’t be back to haunt me in 2014, when the World Cup moves to Brazil. But I am already eagerly awaiting competition from Pedro the piranha, Sammy the snail and the rest of the forecasting fauna.
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