Prediction & The 2006 World Cup

Back in 2002 Brazil won the World Cup, which is exactly what was expected. Why, because they were the favourites? Well no actually they weren’t, in fact there were other much more fancied teams, but all of these crashed out of the competition fairly early on. But of course Brazil were bound to win the cup; it was in the numbers. What? Well in the few weeks leading up to the competition in the Far East, somebody noticed the following little relationship:
Brazil had previously won the World Cup in 1994, and before that in 1970. If you add 1994 to 1970 you have a total of 3964.
Argentina won the World Cup last in 1986, and before that in 1978. If you add 1986 to 1978 you have a total of 3964.
Germany last won the World Cup in 1990, and before that in 1974. Yes if you add those numbers together you once again get 3964.
Now for the clever (dare one say predictive) part. Applying this formula (which has been right three times before) we can take the total of 3964, deduct 2002 for this year’s competition, and get the answer 1962. Clearly whoever were champions in 1962 would win in 2002. Well Brazil won in 1962 and of course did so again this time! All of this calculation (coincidence and wishful thinking more like) came crashing down with the results of the 2006 competition. Using our trusted system (!) we could have calculated that Brazil should have won again – but unfortunately Italy ruined things by lifting the trophy.

So what’s going on with this little formula? Well in fact very little. It’s just a very nice example of coincidence, nothing more; no supernatural force is guiding the destiny of World Cup winners, the results above may just be a fluke, but they are also extremely selective. Of course it’s hard not to be impressed by the initial run of success for this little formula, but in doing so we are forgetting some very important factors. The data above is a very narrow selection, there are plenty of examples where the formula just doesn’t work, and of course as there have only been seventeen World Cup competitions, the data sample is just too small to be meaningful. Once again the human mind is impressed by statistics that are in fact insufficient and therefore probably unreliable – as was neatly demonstrated by the 2006 outcome.

Large amounts of academic research has shown time after time that we are over impressed by coincidences. We place too much faith in seemingly amazing coincidences when in fact many such events are far more commonplace than we imagine. Given the mindset of financial markets it is not surprising that many events are given undue importance or attention because they are seen as significant when in fact they are merely coincidences. It is more interesting and impressive to reel off an amazing relationship in the marketplace than to coolly stand back and see that it was just a coincidence with no serious meaning. As we observed earlier the market is gripped by meaning and relevance; events are always supposed to happen for a reason or an underlying motive. The term coincidence is rarely if ever heard in the market; it is simply not recognised as a legitimate explanation for any market move. Chance is given little house room in such an atmosphere.