Guest Post by TUSHAR DHARA
In May this year the investment banking powerhouse Goldman Sachs released a report that predicted Brazil would win the FIFA world cup. The prediction relied on statistical modelling and used tools like “Regression Analysis”, “Poisson Distribution”, “Stochastic model” and “Monte Carlo Simulation”. In other words, the methodology is incomprehensible to anyone except those with an advanced degree in Statistics or Econometrics. In hindsight, the prediction looks silly, given the 7-1 score line in the semi-final match between Germany and Brazil. However, the report is a perfect example of the failures of modern economics, particularly the financial voodoo economics pushed by the likes of Goldman Sachs.
When “The World Cup and Economics 2014” was released on May 27 it gained a lot of press publicity globally. The report predicted that Spain would reach the semi-final stage and lose to Argentina, which would lose to Brazil in the final. Goldman’s research division analyzed reams of data, including about 14,000 matches since 1960, national teams’ Elo rankings, average goals scored per team, home country and home continent advantage. To be sure, the report states that the predictions are just “probabilities” of teams advancing. Still the report states, “The most striking aspect of our model is how heavily it favours Brazil to win the World Cup”, and, “the extent of the Brazilian advantage in our model is nevertheless striking.” Continue reading How Goldman Sachs Got it Wrong on Football, The World Cup and Economics: Tushar Dhara