March Madness starts today as the first of 68 teams begin play for the NCAA men’s basketball title. While most of us will not be able to watch all the games, we will follow the results closely because we have one or more brackets completed for tournament pools.
There are almost as many methods for selecting teams as there are for selecting stocks. All of the methods used to select either teams or stocks have one thing in common: they do not give the correct pick every time. No matter what you do, some of your picks will not pan out.
However, we do know that some methods are statistically more successful overall and that is the topic of a recent article by Matthew Huston in the Psychology Today blog. The article recommends that players should not try to predict upsets in tournament pools. While there will certainly be upsets, trying to pick them is very likely to reduce your overall win percentage. Mr. Huston discusses the statistical fallacy at work here:
…McCrea and Hirt found that people did not predict upsets as a result of thinking the worse-seeded team was actually the better team. So what’s going on? The researchers concluded that fans adhere to a strategy called probability matching.
Let’s say you’re drawing balls from a large box that contains 25 red balls and 75 blue balls. Many people tasked with predicting draws will predict red 25 percent of the time and blue 75 percent of the time. They match their guesses to the probabilities of the outcomes, in this case yielding a 62.5 percent success rate. But if they just guessed blue on each draw, they’d be right, on average, 75 percent of the time.
Similarly, people know there will be a certain number of upsets in each NCAA tournament, and therefore betting on a Cinderella-free tourney seems silly. The only logical thing to do, they conclude, is to figure out when those upsets will take place. The drawback, of course, is that by shooting for perfection, they end up handicapping themselves. In McCrea and Hirt’s research using real NCAA data, for example, people would have been much better off just sticking to the seedings.
This strategy of probability matching is similar to trying to bottom fish stocks. It can be incredibly gratifying—not to mention ego-boosting—to correctly pick the Cinderella team or stock, but the probabilities are not in your favor. Instead of picking weak teams or weak stocks to win, you would most likely do better by going with strength even though not all your picks will be correct.
Source: www.faqs.org
