Regular readers know that I love using sports to find investment insights. There are three reasons:
- Plentiful data – both before the event and afterwards;
- Specific odds from prediction markets and pundits – even better than we have in stocks;
- The comparison forces investors to abandon market preconceptions, thinking about questions in a different way.
What can we learn from the problem of filling out your NCAA bracket?
The Popular NCAA Upset
Investors who listen to the “bracketology pundits” for a few minutes will find it familiar. There are plenty of buzzwords and opinions, but little supporting data.
One popular theme is that you should search for a good upset in your brackets and the best place to start is when the Regional 5-seed plays the 12-seed. There is some logic here. Let’s look at the actual a priori odds for these games, taken from the excellent TeamRankings site:
These are the odds of advancing for each round, so the last column is “winning it all.”
5     Oklahoma     West     65.3%     34.1%     10.0%     4.2%     1.4%     0.5%
5     Cincinnati     East     61.5%     26.8%     11.6%     5.7%     2.3%     0.9%
5     Saint Louis     MidW     56.8%     14.4%     4.3%     1.6%     0.5%     0.2%
5     VCU         South     69.9%     37.5%     13.3%     6.4%     3.0%     1.2%
