The octopus and the economists
What do an eight-legged creature in an aquarium in Germany and 74 economists have in common? The consensus view that Spain would claim the World Cup — until the economists, as they so often do, changed their minds.
If World Cup 2010 goes down as one of the most unpredictable and exciting competitions in recent history, bringing underdogs Holland and Spain to the final showdown, what was hopelessly routine was watching so-called expert opinion converge around the safest bet. At least among financial professionals, who have done so well of late predicting the future.
When Reuters first surveyed economists and forecasters in May on which team would be kissing the golden grail on July 11, 2010 in South Africa, it made for interesting reading. Spain would take it — by a narrow margin, it has to be said — followed by Brazil, Argentina and England. Improbable probability analysis, perhaps, but not boring.
Then as various teams got knocked out of the competition — former champions Italy, France, and England — in a miserable and well-deserved defeat to Germany, Reuters re-polled these same economists and a few more for good measure. And that’s when they fell flat. Those brave forecasters slipped back to the easy choice, and as a group they picked Brazil. We all know what happened to them.
It’s hard enough to accurately predict where GDP growth is headed, where a currency will trade, or where interest rates will go, let alone who’s going to win a major sporting tournament. But what the economists should have done was go with their gut and hang on to their convictions instead of revising their views with each little new development, as they so often do.
But for all those last-minute changes, it has to be said the economists were better at it this time around than in 2006. Back then, fewer than 10 percent of them predicted Italy would win — about the same proportion who managed to predict the biggest financial crisis in generations.