Random Forecasts

We all try to predict the future. Particularly in business, sports, finance, etc. I like to recall a story that Larry Kramer, CEO of MarketWatch, shared with me a long time ago.

Larry had spent a lot of time in finance, but before that had a deep background in sports. Sports betting is a huge industry and people try to prove that they have the edge in picking the winner of any game. So, anyone that can prove that they are a good picker will get attention, or be able to sell their upcoming predictions. Larry shared one of the strategies that he had seen many times.

  1. Take a large group of people, let’s say 10,000. Send half of them a message that Team A will win the game this weekend. Send the other have a message that Team B will win the game this weekend.
  2. Whichever team wins, send a message to that group that you were right. Send no further messages to the group you got wrong.
  3. Repeat.

At the end of three cycles you have 1,250 people that have seen you perfectly predict the last three games. You must be a genius! Will they pay you to get your prediction for the next game? You must have an edge.

So what is the lesson? When someone seems like a fantastic forecaster, make sure you aren’t just one of the people in that third set of people!

Jamie Thingelstad @jthingelstad

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