Superbowl Prediction Folly
Posted by Doug Rice on Sun, Feb 07, 2010 @ 05:05 PM
Parade, the insert in many Sunday papers has a section called the "Intelligence Report"
Intelligent? Well, let's see about that.
The article, The Truth Behind Super Bowl Myths caught my attention today as they knew it would.
But the pull quote saying, "Does the big game predict the stock market? Strangely, yes," made me stop to actually read it.
Of course, it's just baloney. But it's misleading baloney so I thought I would clear it up.
Here's what it said:
"MYTH #6. The outcome of the Super Bowl predicts the stock market's performance for the coming year. Absurd as it may sound, this is the only Super Bowl myth with clear evidence to back it up. The "Super Bowl Indicator" says that if a team from the old American Football League wins, stock markets go down; if one from the old National Football League wins, the markets will go up. Things get tricky when expansion teams or teams that have relocated make it to the big game, but many still have links to former AFL or NFL teams or cities. Robert Stovall, an investment strategist from Sarasota, Fla., who tracks the indicator, says it has been accurate for 34 of the 43 Super Bowls played thus far, a rate "better than any gaggle of gurus I've ever heard of." Stovall doesn't recommend that investors act on its winning record, but, he says, " It does make me feel better when we have an all-clear from the Super Bowl Indicator."
An "all-clear from the Super Bowl Indicator"? Is he kidding or is he delusional? I'll assume the former and let it go.
But a scientist, before accepting that premise, would wonder if the second event was caused by the first event. In other words, is there a causal (not casual) relationship between the two? And if so, why?
Simply because there is a limited set of data that shows some anecdotal correlation doesn't make it causal.
If you flip a coin 43 times and it comes up heads 34 times, that still doesn't mean that the stock market is going to go up or down the next time you flip. It's irrelevant. The two aren't related.
For there to be a causal relationship and the Super Bowl to actually be a predictor of the future stock market, then the first event, the Super Bowl, would have to cause the second event, the stock market, to change.
If there isn't a causal relationship, they are independent events. The first has no baring on the second.
Saying the stock market is dependent upon the Super Bowl winner, simply put, is crazy talk.
Why this matters to you
When thinking about the decisions in your life, especially the important ones, it's crucial to not make assumptions based on a faulty premise.
Now I know most of you are thinking this is silly as no one would invest based on a football game.
But it wasn't that long ago that many people believed that the real estate market will never go down, the interest rate on home loans won't adjust, or if it does, refinancing options will be available.
Faulty premises all, the result of which cost many people dearly.
Telling people that the big game predicts the stock market may catch people's attention in the newspaper, drawing readers to increase advertising dollars.
But it's emblematic of the problem with articles called the "Intelligence Report" printed in widespread publications that have baloney like this in them: Some people believe it.