By James Kwak

A reader alerted me to the World Cup forecasting competition, which includes links to the predictions made by several major investment banks’ models, and some data you can use if you want to give it a shot. The predictions:

• JPMorgan Chase: England
• UBS: Brazil (UBS also has South Africa as the team most likely to make the second round, which seems surprising.)
• Goldman: Brazil
• Danske Bank: Brazil

I typically root for France, because I started following soccer while living in France back in the early 1990s, but I don’t think I can this time because (a) they don’t deserve to be in the World Cup Finals, having beaten Ireland on an obvious hand ball and (b) I can’t stand their coach, who has managed to transform an incredibly talented group of players into a mediocre team.

As for who will win, I would go with Nate Silver (who recently signed with the Times for three years) if he made a prediction, but I don’t think he has.

Enjoy.

By James Kwak

I have a lot to catch up on from this past week, like the Lehman report, but first I have more important business to attend to: the NCAA Division I men’s college basketball tournament. Tomorrow is Selection Sunday, the day when sixty-five teams are selected for the tournament. Thirty-one conference champions automatically make the tournament, leaving thirty-four at-large spots handed out by a committee.

Today, the general approach, uncontested by virtually everyone, is that the committee selects what it thinks are the best teams, based on things like record, strength of schedule, and Ratings Percentage Index. Invariably it leads to controversy at the margin. There are also many people who think the system is biased in favor of mediocre teams from major conferences and against good (though not champion) teams from “mid-major” conferences.

I think there are two things wrong with this system. The first is that decisions are arbitrary at the margin, since they are made subjectively by comparing teams that cannot be directly compared. The second is that the process selects for the wrong thing: it selects teams that a committee thinks are good teams, rather than teams that deserve to be there because they win games that matter. To make an analogy, it’s as if at the end of the baseball regular season a committee subjectively decided which were the best teams and let them into the playoffs, rather than taking the three division winners and the wild card team from each league. Yes, sometimes a team misses out on the playoffs despite having a better record than a team in the playoffs. But everyone knows what the rules are at the beginning of the year, and the point is to win your division (or the wild card), not simply to be a good team.

Continue reading “Get Rid of Selection Sunday” →

The most interesting part of Monday’s post on TARP may have been this little football example:

In honor of the changing seasons, imagine it’s the first quarter of a football game and you have fourth-and-one at the other team’s 40-yard line. Anyone who studies football statistics will say you should go for it; it’s not even close. (Some people have run the numbers and said that a football team should never – that’s right, never – kick a punt.) If the offense fails to make it, the announcer, and the commentators the next day, will all say that it was a bad decision. That’s completely wrong. It was a good decision; it just didn’t work out.

One of my friends was particularly intrigued by the theory that a football team should never punt. I recall reading this somewhere, but I couldn’t find it actually demonstrated anywhere, although this high school football team implemented the strategy – and won the state championship. That article cites “Do Firms Maximize? Evidence from Professional Football” by David Romer, who analyzes the punting question in detail.

Continue reading “Football, Statistics, and Agency Problems” →