Spain won.

Paul the Octopus was right.

And FT Alphaville, for one, welcomes our new cephalopod overlords.

Because from our reading of the results of the World Cup forecasting contest run by the data predictor chaps at Kaggle, Paul ended up beating the banking world’s finest.

As Kaggle explain (our emphasis):

JP Morgan finished 28th, Goldman Sachs 33rd, FT Alphaville finished 40th, UBS 55th and Danske Bank 64th. All the banks performed worse than the betting markets, which finished 16th (based on Betfair odds).

So what was the cephalopod’s secret?

Well, Paul’s method of floating from one food-filled box to another involved binomial distribution — engaging probabilities which were roughly on a par with tossing a coin. Paul beat 1/256 odds of being right on all eight of his World Cup predictions.

Which, compared to the six-sigma events quants have dealt with in recent years, is pretty humdrum. Especially in that Paul’s also been the unwitting victim of our weakness for misconstruing unrelated probabilities.

And as Kaggle continues, an actual human also successfully called the tournament:

The winner of the competition was Thomas Mahoney, an Australian economist. His approach relied on Elo ratings with an adjustment for home country/continent advantage. His strategy correctly tipped Spain to win, the Netherlands to finish second and Germany to finish in the top four. The investment banks all had their top picks bow out early (UBS, Goldman Sachs and Danske Bank picked Brazil and JP Morgan picked England), hurting their overall performance.

Hang your tentacles in shame, banks.

Not least because Kaggle next plans to run a competition to predict stock market returns. No word if Paul is mulling an entry, though.

This entry was posted by Joseph Cotterill on Monday, July 12th, 2010 at 9:00 and is filed under Capital markets, People. Tagged with cephalopods, football, Paul the octopus, world cup. Edit this entry.