UBS, Commerzbank Models Predicted Germany Would Win the World Cup. Why Predicting Sports Is Bad Business
Investment banks have spent heavily on sophisticated computer programs, hoping to better predict stock market that is inherently unpredictable. To show off their algorithmic prowess, some financial institutions set out to predict the winner of the 2018 World Cup.
For Switzerland-based UBS and Germany’s Commerzbank, that didn’t work out so well. Before the game started, the banks ran computer simulations of World Cup games and both concluded that the likely winner would be… (drumroll)… Germany.
The top ranked country suffered a stunning 2-0 defeat on Wednesday to South Korea, the World Cup’s biggest upset so far. Germany entered the tournament as its defending champion, but the team was not only eliminated from the World Cup, it didn’t even secure a place in the round of 16.
Predictions from other investment banks have yet to be proven right or wrong. Goldman Sachs ran a simulation of 1 million games and predicted that Brazil would win the World Cup this year (although it also predicted Germany reaching the finals). ING, a Dutch bank, said its models foresaw Spain winning the World Cup this year.
In fairness to Wall Street, simulations that were run in the academic world also saw Germany as a favorite to win or at least reach the finals. One simulation by the University of Adelaide gave Germany a 13% chance of winning, while another at the University of Innsbruck reckoned the Brazil had a 17% chance of winning, with Germany close behind at a 16% chance.
It’s still not clear whether any computer can match the World Cup divination powers of Paul the octopus, which correctly divined 12 out of 14 World Cup winners. Paul passed away in 2010. Other animals, such as Achilles the cat, are trying to predict World Cup games this year but none so far can lay claim to Paul’s throne.
Germany’s loss marks the country’s earliest exit from the World Cup since 1938. In the past 20 years for defending champions have been eliminated in the group phrase: France in 2002, Italy in 2010, Spain in 2014, and Germany this year.