Wednesday, May 28, 2014

Goldman Sachs Predicts the WorldCup Winner

The football (or soccer if you prefer) World Cup is nearly upon us. It’s a big deal.

Beginning June 12, millions of fans across the world will be suffering from an acute urge to watch the action on the screen. Symptoms may include frequent visits to the pub, tired eyes for those who stayed up all night watching games, or even, dare we say it, a certain prioritization of football over work.

Stocks of beverage companies will no doubt feel the benefit.  Plenty of funny headgear will make its way onto the TV. Even those with fairly gloomy dispositions will for a few weeks think that—just perhaps– their mediocre teams could topple much better outfits. Ha!
But which team will win the tournament?

Hosts Brazil, according to Goldman Sachs, which has crunched lots of numbers. Lots and lots of numbers (Dominic Wilson and Jan Hatzius from Goldman Sachs’s economics team joke that they wish staff showed the same level of dedication for their day jobs.)

Goldman explaining the methodology:
“The predictions for each match are based on a regression analysis that uses the entire history of mandatory international football matches—i.e., no friendlies—since 1960. This gives us about 14,000 observations to estimate the coefficients of our model. The dependent variable in the regression analysis is the number of goals scored by each side in each match. Following the literature on modelling football matches, we assume that the number of goals scored by a particular side in a particular match follows a Poisson distribution.”
Brazil stands out as the clear favorite according to Goldman Sachs, well ahead of even reigning champion Spain. Cameroon, Japan and Honduras on the other hand might as well give up now, according to the Goldman data. The actual odds also favor Brazil although the gap with other teams is less stark than in Goldman’s model.

There is also bad news for England, according to the model. The Three Lions are likely to bow out early without a win as Goldman predicts that the team may not be able to beat footballing heavyweight Costa Rica
And this is how the knockout stages will pan out with the tournament culminating in Brazil thrashing local rival Argentina to win its first World Cup since 2002

It’s worth pointing out that there are several assumptions made in the model (pedigree and past performance clearly trump potential, which is why Belgium with its young exciting squad has such a slim chance according to the Goldman model). So before clients take umbrage at the predictions here’s what Goldman Sachs has to say:
“To be clear, our model does not use any information on the quality of teams or individual players that is not reflected in a team’s track record. For example, if a key player who was responsible for a team’s recent successes is injured, this will have no bearing on our predictions. There is also no role for human judgment as the approach is purely statistical.”
Goldman’s clients also have a say: they have picked a ‘Dream Team’ of the players at the World Cup. There is no space in the starting 11 for two outstanding performers from the just-concluded season of the Barclays Premier League: Liverpool’s Luis Suarez and Manchester City’s Yaya Toure (even though Toure has been making noises about leaving the league winners after the club didn’t properly wish him congratulations on his 31st birthday!)
Repost from WSJ by Neelabh Chaturvedi

No comments:

Post a Comment