Thursday, March 26, 2015

A Strategy of No Skill

I love this:

Russ: I get an email from a football predictor who says, 'I know who is going to win Monday night. I know which team you should bet on for Monday night football.'

And I get this email, and I think, well, these guys are just a bunch of hacks. I'm not going to pay any attention to it. But it turns out to be right; and of course who knows? It's got a 50-50 chance. But then, for the next 10 weeks he keeps sending me the picks, and I happen to notice that for 10 weeks in a row he gets it right every time. And I know that that can't be done by chance, 10 picks in a row.

He must be a genius. And of course, I'm a sucker. Why?

Guest: So, let's say after those 10 weeks in a row you actually subscribe to this person's predictions. And then they don't do so well, after the 10 weeks.

And the reason is that the original strategy was basically: Send an email to 100,000 people, and in 50,000 of those emails you say that Team A is going to win on Monday. And in 50,000 you say Team B is going to win on Monday.

And then, if Team A wins, the next week you only send to the people that got the correct prediction. So, the next week you do the same thing. 25,000 for Team A, 25,000 for Team B. And you continue doing this. And the size of the number of emails decreases every single week, until after that 10th week, there are 97 people that got 10 picks in a row correct. So you harvest 97 suckers out of this. (http://www.econtalk.org/archives/2015/03/campbell_harvey.html)

Or in other words:

$ irb
2.1.3 :001 > people = 100_000
100000
2.1.3 :002 > 10.times.map { people /= 2 }
[
  [0] 50000,
  [1] 25000,
  [2] 12500,
  [3] 6250,
  [4] 3125,
  [5] 1562,
  [6] 781,
  [7] 390,
  [8] 195,
  [9] 97
]